UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10‑K

(Mark One)
☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
For the fiscal year ended December 31, 2018
OR
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .

Commission file number 001‑36017

Control4 Corporation

(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)	42‑1583209 (I.R.S. Employer Identification No.)
11734 S. Election Road Salt Lake City, Utah (Address of principal executive offices)	84020 (Zip Code)

(801) 523‑3100

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class		Name of each exchange on which registered
Common Stock, $0.0001 par value per share		The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well‑known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site~~, if any, every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S‑T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ☒ No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S‑K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10‑K or any amendment to this Form 10‑K. ☒☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☒ Non‑accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ~~☒ (Do not check if a smaller reporting company)~~☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes ☐ No ☒

The aggregate market value of voting and non‑voting common equity held by non‑affiliates of the registrant as of June 30, ~~2017~~2018 was approximately $~~484~~553.37 million (based on a closing sale price of $1924.6131 per share as reported for the NASDAQ Global Select Market on June 30, ~~2017~~2018). For purposes of this calculation, shares of common stock held by officers, directors and their affiliated holders and shares of common stock held by persons who hold more than 10% of the outstanding common stock of the registrant have been excluded from this calculation because such persons may be deemed to be affiliates. This determination of executive officer or affiliate status is not necessarily a conclusive determination for other purposes.

As of February 97, ~~2018~~2019, 25 26,~~833~~520,~~471~~482 shares of the registrant’s Common Stock, $0.0001 par value, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement relating to its ~~2018~~2019 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form 10‑K where indicated. Such Proxy Statement will be filed with the U.S. Securities and Exchange Commission (“SEC”) within 120 days after the end of the fiscal year to which this report relates.

Control4 Corporation

Form 10-K

For Fiscal Year Ended December 31, ~~2017~~2018

Table of Contents

Part I.
Item 1.	Business	4
Item 1A.	Risk Factors	13
Item 1B.	Unresolved Staff Comments	3534
Item 2.	Properties	3534
Item 3.	Legal Proceedings	35
Item 4.	Mine Safety Disclosures	35
Part II.
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	36
Item 6.	Selected Financial Data	3839
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4243
Item 7A.	Qualitative and Quantitative Disclosures about Market Risk	6362
Item 8.	Financial Statements and Supplementary Data	64
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	9496
Item 9A.	Controls and Procedures	9496
Item 9B.	Other Information	9496
Part III.
Item 10.	Directors, Executive Officers and Corporate Governance	9597
Item 11.	Executive Compensation	9597
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	9597
Item 13.	Certain Relationships and Related Transactions and Director Independence	9597
Item 14.	Principal Accountant Fees and Services	9597
Part IV.
Item 15.	Exhibits, Consolidated Financial Statements and Financial Statement Schedules	9698
Item 16.	Form 10-K Summary	9799
Signatures		98100

Table of Contents

Cautionary Note Regarding Forward-Looking Statements

This Annual Report on Form 10-K (“Form 10-K” or “Annual Report”) contains “forward-looking statements” that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. All statements other than statements of historical fact contained in this Form 10-K are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Such forward-looking statements include any expectation of earnings, revenues or other financial items including without limitation statements about the accretive effect of any acquisitions; any statements of the plans, strategies and objectives of management for future operations or growth; factors that may affect our operating results; statements related to adding employees; statements related to future capital expenditures; statements related to future economic conditions or performance; statements related to product or service adoption and network expansion; statements as to industry trends or market opportunities and other matters that do not relate strictly to historical facts or statements of assumptions underlying any of the foregoing. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “intends” or the negative of these terms or other comparable terminology. We caution investors that any forward-looking statements are made as of the date they were first issued and are based on management’s beliefs, expectations, and on assumptions made by, and information currently available to, management. Forward-looking statements are subject to risks, assumptions and uncertainties, many of which involve factors or circumstances that are beyond Control4’s control. Control4’s actual results could differ materially from those stated or implied in forward-looking statements due to a number of factors, including but not limited to, those discussed in the section titled “Risk Factors” included in this Form 10-K, as well as other documents that may be filed by the Company from time to time with the SEC. Control4 urges investors to consider these factors carefully in evaluating the forward-looking statements contained in this Form 10-K and not to give any such forward-looking statement any undue reliance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. The forward-looking statements included in this Form 10-K represent Control4’s views as of the date of this Form 10-K, and the Company anticipates that subsequent events and developments will cause its views to change. Control4 undertakes no intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, unless required by law.

References in this Form 10-K to the “Company,” “Control4,” “we,” “us,” and “our” refer to Control4 Corporation and, where appropriate, its subsidiaries, unless otherwise stated.

"Control4," "Pakedge," “Triad,” “NEEO,” and other trademarks of ours appearing in this report are our property. This report contains additional trade names and trademarks of other companies. We do not intend our use or display of other companies' trade names or trademarks to imply an endorsement or sponsorship of us by such companies, or any relationship with any of these companies.

Table of Contents

PART I.

ITEM 1. Business

Overview

Control4 is a leading provider of professionally-installed smart home and business solutions that are designed to personalize and enhance how consumers engage with an ever-changing connected world. Our entertainment, smart lighting, comfort and convenience, safety and security, and networking solutions unlock the potential of connected devices, making entertainment systems easier to use and more accessible, homes and businesses more comfortable and energy efficient, and individuals more connected and secure. Our premium smart home and small business solutions provide consumers with the ability to integrate audio, video, lighting, temperature, security, communications, network management and other functionalities into a unified automation solution, customized to match their lifestyles and business needs. Our advanced software, delivered through our controller and user-interface products together with various cloud services power this customized experience, enabling cohesive interoperability with thousands of connected Control4 and third-party devices.

Consumer need for simplicity and a personalized experience, combined with advances in technology, are driving rapid growth in the connected home market. As the “Internet of Things” shapes the way we live and work, consumers are looking for affordable ways to extend and enhance the interoperability of connected devices in their homes and businesses, driving growth in the ~~mainstream~~ automation market.

We were founded in 2003 to deliver a premium home automation solution by enabling consumers to unify their connected devices into a personalized system. We strive to create solutions that enable customers to purchase our products at an accessible and affordable entry point, while offering flexibility to expand to include additional devices, services and features optimized for every type of project, from a single-room all the way to a luxurious, fully-integrated whole-home experience. We believe that our solution is a leader in the ~~mainstream~~professionally-installed home automation market by providing integrated and scalable control of ~~over~~approximately 1113,000 third-party devices and services. These devices and services span a broad range of product categories including audio, video, lighting, ~~temperature~~comfort, security, communications, network management and cloud services. Our platform capabilities provide consumers with solutions that are comprehensive, personalized, flexible, affordable, and easy to use and manage.

Based on our analysis, we estimate that we have automated more than ~~329~~385,000 homes and businesses representing cumulative sales of more than ~~665~~779,000 of our controllers, which include our automation software. We sell and deliver our solutions through our worldwide network of over 5,~~290~~480 active direct dealers and 5043 distributors and have solutions installed in ~~101~~106 countries. In ~~2017~~2018, our top 100 dealers represented 1817% of our total revenue and our top 10 dealers represented 4% of our total revenue.

We generated revenue of $~~244~~272.75 million, $~~208~~244.82 million and $~~163~~208.21 million in ~~2017~~2018, ~~2016~~2017 and ~~2015~~2016, respectively. We had net income of $1643.08 million, $15.5 million and $1312.03 million in 2018, 2017 and 2016, respectively~~, and a net loss of $1~~.~~7 million in 2015.~~

Our Industry

Within the last decade, the pace of innovation in the electronics industry has accelerated rapidly. Network-aware devices—such as televisions, smartphones, tablets, thermostats, audio systems, lighting, blinds, security systems, cameras, video doorbell stations and other appliances form the basis for the “connected controllable home.” Home automation technology integrates network aware and enabled devices in the connected home, unlocking the collective potential of these devices to work together to improve consumers’ lives, and with proliferation of connectable devices, we believe that the appeal of integrated home automation will continue to expand to a broadening base of consumers.

Whole-home or business automation solutions unify the control of audio, video, lighting, temperature, security, communications and other devices in the connected home or business to provide consumers with improved convenience, comfort, energy efficiency and security. The key functional elements of home or business automation include:

Control. Controlling devices is the most basic capability of home automation solutions. From a single interface, consumers can operate a wide array of devices using wired or wireless connections. With the growth in smartphones and tablets, control functionality is increasingly extended to these mobile devices;

Table of Contents

Automation. After initial programming, automation enables devices to function without additional human intervention. Automation also enables various devices to work in concert to perform more complex tasks and to take actions based on external conditions;

· Personalization. Personalization enables home automation solutions to be tailored to the unique lifestyle requirements of individual consumers and their families. Personalization unlocks the full potential of home automation to enhance, enrich and simplify the lives of consumers; ~~and~~

· Connectivity. An advanced networking system with the ability to provide reliable, scalable services for audio and video distribution and cloud-based management services for both the monitoring and repair of wireless and wired automation solutions, provides a foundational layer for home automation.;

Installation and Configuration. As the number and types of connected devices continues to grow, the need for local professional consultation, installation and support is essential for a successful home automation experience. We have built a global network of over 5,480 active independent dealers who are certified on our full range of products and receive in-depth training and on-going education and support, enabling them to help consumers develop and install personalized home automation experiences; and

Monitoring and Management. A robust management service platform provides professional integrators with powerful device monitoring and management capability to efficiently and proactively support connected-home customers. Professional integrators receive alerts when performance concerns are detected, and they can remotely identify the root cause and initiate resolution actions remotely. This prompt response and preemptive service is cost-effective and improves the overall satisfaction of automation solutions.

We believe new technology will continue to enhance the automation experience through artificial intelligence, identity recognition, presence and location awareness and advancements in voice control.

Our Solution

The Control4 solution, built around our advanced software platform and utilizing our network management devices and cloud services functions as the operating system of the home, integrating audio, video, lighting, temperature, security, communications and other devices into a unified automation solution that enhances our consumers’ lives. We unlock the potential of connected devices, making entertainment systems easier to use, homes more comfortable and energy efficient, and families more secure.

The Control4 solution integrates our own devices and thousands of third-party devices and systems into a unified, easy-to-use solution for ~~mainstream~~ consumers once it has been installed by one of our authorized professional dealers. As a result, our solution provides the consumer with the following benefits:

Easy to Use. Our solution is designed to be simple and intuitive. Through our unified software platform, consumers can easily interact with their entire automated home without needing to learn how to use multiple interfaces or numerous remote controls. We have designed our solution so that anyone, from a young child to a grandparent, can pick up a Control4 remote or other interface device (including a smartphone or tablet with Control4’s app), and with a few intuitive clicks, watch a movie;

· Broad Device Interoperability. Our open and flexible platform provides consumers with access to a broad universe of third-party devices that become connected and interoperable through our solution. Our platform is currently interoperable with ~~over~~nearly 1113,000 third-party devices, and we continually add additional integration with new devices in order to ensure that Control4 is able to integrate with the typical home’s connectable and controllable devices;

· Advanced Personalization. Our adaptable solution enables our consumers to personalize the features and functionality of their Control4 system. ~~Using “When >> Then” automation, consumers can personalize their automation system through homeowner directed programming.~~ Our modular design ~~also~~and ~~enables~~programmability enable the smooth integration of new third-party products to meet the evolving needs of our consumers as their lifestyles change;

· ~~Attractive~~Competitive ~~Entry Point~~Pricing. InCustomers ~~February~~can ~~2018,~~purchase ~~we released~~ our ~~new CA-1 controller which is designed for~~ entry~~-level~~ projects for homeowners interested in lighting, temperature control and security, and retails for $350 (excluding installation costs). This supplements our Entertainment and Automation series of controllers, or the EA Series, which includes the entry-level EA-1 controller ~~at a reduced price point~~ for ~~entry-level consumers wanting to start with a~~ single room ~~multi-media~~multimedia automation experience, ~~of approximately $500 (excluding installation costs). Projects can then scale in sophistication~~ and ~~scope~~new ~~from a single room to a fully-integrated whole-~~home ~~experience.~~builders Weinterested ~~have also introduced entry-level solutions~~ in ~~networking with the release of the WR-1 router~~lighting, temperature and ~~audio~~security ~~with~~automation ~~the introduction of the award-winning Triad One streaming amplifier;~~can

· Professional Installation and Support. As the number and types of connected devices continues to grow, the need for local professional consultation, installation and support is essential for a successful home automation experience. We have built a global network of over 5,290 active certified independent dealers. Independent dealers certified on our full range of products receive in-depth training and on-going education and support, enabling them to help consumers develop and install their personalized home automation experiences. To further

Table of Contents

~~increase~~purchase ~~consumer~~the ~~satisfaction~~CA-1 controller, weeach ~~also~~for ~~maintain~~approximately a$500 ~~small~~and ~~Customer~~$350, ~~Advocacy~~respectively &(excluding ~~Care~~installation ~~Group~~costs). ~~that~~Projects ~~works~~can ~~directly~~then ~~with~~scale ~~consumers~~in tosophistication ~~understand unresolved questions~~ and ~~concerns~~scope ~~and~~from ~~coordinate~~a ~~with~~single ~~their~~room ~~dealer~~ to ~~reach~~ a ~~resolution~~fully-integrated whole-home experience;

· ~~Cloud~~Customer ~~Services~~Support. WeTo ~~have~~further ~~built~~increase aconsumer ~~secure~~satisfaction, ~~infrastructure~~we tomaintain ~~provide~~a ansmall ~~array~~Customer ofAdvocacy ~~cloud-based~~& ~~services~~Care toGroup ~~enhance~~that ~~the~~works ~~homeowner~~directly ~~and~~with ~~dealer~~consumers ~~experience,~~to ~~which~~understand ~~include~~unresolved ~~remote~~questions ~~customer~~and ~~system~~concerns ~~access~~ and ~~control,~~coordinate ~~remote~~with their dealer ~~management~~to ~~capabilities~~reach ~~and~~a ~~voice control~~resolution; ~~and,~~

· ~~Scalability~~Cloud Services. ~~Our~~We ~~solution~~have ~~provides~~built ~~customers~~a ~~with~~secure ~~the~~infrastructure ~~ability~~ to ~~extend~~provide ~~and~~an ~~enhance~~array ~~the automation capabilities~~ of ~~their~~cloud-based ~~system~~services asto ~~their~~enhance ~~needs~~the ~~evolve.~~homeowner ~~Customers~~and ~~who~~dealer ~~initially purchase an entry level~~experience, ~~one-room~~which ~~solution~~include ~~could~~remote ~~later~~customer ~~build a comprehensive home automation~~ system. ~~The~~access ~~extensibility~~and ofcontrol, ~~the~~remote ~~system~~dealer ~~empowers~~management ~~customers~~capabilities toand ~~invest~~voice incontrol; ~~solutions that fit their current needs.~~and

Scalability. Our solution provides customers with the ability to extend and enhance the automation capabilities of their system as their needs evolve. Customers who initially purchase an entry level, one-room solution could later build a comprehensive home automation system. The extendibility of the system empowers customers to invest in solutions that fit their current needs.

Our Strategy

Our primary goal is to be the leading provider of comprehensive home automation solutions that provide a premium experience for our customers. We believe we differentiate ourselves through our operating system which orchestrates the thousands of devices consumers choose to install in their homes. The following are key elements of our growth strategy:

· Product Innovation. We strive to continuously develop new innovative hardware and software products for our customers. We believe that our success to-date has been largely driven by our software platform’s ability to deliver personalized solutions for the end -consumer. In ~~2017~~2018, we released Control4 OS 2.10.4, featuring expanded music streaming service ~~integrations~~integration with ~~iHeartRadio,~~Amazon ~~Sirius~~Music ~~XM,~~ and ~~Spotify~~Deezer ~~supported~~HiFi byas well as added hands-on personalization capability for homeowners with our EA“When ~~Controllers~~>> Then” automation functionality. In addition, we released Intercom Anywhere, an ~~updated~~award-winning ~~version~~video ofdoorbell ~~4Sight~~enabling ~~which~~homeowners ~~includes~~to asee ~~new~~and ~~homeowner~~communicate ~~customization~~with ~~functionality~~visitors ~~called~~at ~~“When~~the >>front ~~Then”~~door, ~~automation~~whether they are home or away, as well as initiate control actions, such as opening a garage door or turning on the light;

· Channel Expansion. We have developed a global network of over 5,~~290~~480 active, independent, authorized direct dealers and 5043 distributors to sell, install and support our solutions. We intend to continue to expand and optimize our dealer and distributor network to ensure that we have sufficient geographic coverage across both existing and new markets. For example, in early 2019, we transitioned to a direct-to-dealer model in Ireland, New Zealand, and Switzerland. We will also continue to devote significant resources to increase the productivity and competency of our dealers and distributors by providing them with ongoing training, tools and support. For example, in 2017 we launched the Pakedge Certified Network Administrator (PCNA) hands-on and online training program to provide dealers and technicians the networking knowledge they need to design, install, and manage wired and wireless IP networks;

· Enhanced Services. In addition to automating devices within the home, our solution also enables a wide variety of service and application opportunities. We plan to continue to enhance our cloud-based services, through our 4Sight subscription service, which provide consumers with remote home monitoring, support and control capabilities from any Internet-connected mobile device or computer. WeIn ~~also recently acquired the intellectual property and key operating assets of ihiji~~addition, ~~Inc. (“ihiji”), a leading provider of remote management services for technical integrators servicing connected home customers. By offering~~ BakPak, ~~Control4’s~~is our network management solution, ~~and~~which ~~combining~~provides ~~it with ihiji’s invision device monitoring and management solution in the future, Control4 can provide~~ robust cloud-based services to our dealers to securely and efficiently monitor end-customer systems, which we intend to continue to develop and integrate. In addition, we recently integrated the latest release of our BakPak management software on the entry-level Pakedge RK-1 Router enabling our independent dealer network to offer more homeowners the benefits of a monitored, intelligent home network;

· Licensing Opportunities. We continue to make our technology available to third parties through licensing agreements. We make our device auto-discovery technology, Simple Device Discovery Protocol (“SDDP”), available on a royalty-free basis to third parties to streamline and automate the setup, identification and configuration of their devices into our system. ~~For example, in the past year, both LG and Samsung announced the incorporation of SDDP software in their products to simplify integration with Control4 installations.~~ As of December 31, ~~2017~~2018, ~~270~~327 third parties had licensed SDDP from us, representing 25,900 SDDP enabled devices. We also plan to expand our licensing activities to leverage third-party distribution channels, grow our partner relationships through our integration certification program for third-party products, simplify the home automation experience for dealers and consumers, and increase interoperability; and

Strategic Acquisitions. As the operating system of the connected home, we believe we are ideally positioned to identify, acquire and integrate strategic acquisitions that are complementary to our current offerings, strengthen

Table of Contents

~~· Strategic Acquisitions. As the operating system of the connected home, we believe we are ideally positioned to identify, acquire~~ and ~~integrate strategic acquisitions that are complementary to our current offerings, strengthen and~~ expand our technology foundation, enhance our market ~~positioning~~position, distribution channels and sales, and are consistent with our overall growth strategy. For example, over the last ~~few~~several years we have acquired companies such as Pakedge Device & Software, Inc. (“Pakedge”), a leading and award -winning developer and manufacturer of networking products, power distribution and management solutions, asTriad ~~well~~Speakers, asInc. ~~cloud~~(“Triad”), ~~network-managed~~a ~~services~~leader ~~for~~in ~~both~~advanced ~~wireless~~audio technology and ~~wired~~customizable ~~networking~~ speaker-solutions ~~in the connected home~~ and ~~business;~~NEEO ~~and Nexus Technologies Pty~~AG, ~~Ltd.~~ (“~~Nexus~~NEEO”), aan ~~leading~~award-winning ~~distributed~~developer ~~audio/video~~of ~~provider~~remote control technology.

Our Products and Services

The primary benefits we provide consumers and dealers lie in the value and competitive differentiation of our software platform in our integrated solution. We deliver value and differentiation to consumers and generate revenue by embedding our software into a range of physical products.

Software Platform

At the center of the Control4 product line is the Control4 Home Operating System, which we refer to as the C4 OS, and the associated application software and software development kits, or SDKs. The high-level software components include:

· Director. Director is a real-time, cloud-connected, extensible home operating system that runs on our controllers. It is responsible for monitoring and receiving events from numerous devices and services, processing those events according to consumer personalization settings, and then dispatching commands to the appropriate devices to perform predefined actions;

· ~~User~~Home ~~Interface~~Control ~~Application~~Interface. The user interface for our Control4 Operating System displays intuitive and rich graphical user interfaces on televisions, in-wall and table-top touch panels, smartphones and tablets, as well as list-based devices such as remote controls with LCD text-displays;

· Composer. Composer is a software application that enables trained and certified independent Control4 dealers and installers to design, configure, and personalize a Control4 home automation system for consumers~~. Composer “Home Edition” enables consumers to view and configure certain features of their dealer installed and Control4 managed devices~~;

· Control4 Drivers. Control4 creates drivers for all of our internal hardware, and also provides ~~Driverworks~~DriverWorks SDK (software development kit) to third parties in order to enable dealers, programmers and device manufacturers to independently develop and test custom two-way interface drivers to support the integration of a new device or device model into our system, or to customize and enhance an existing driver. DriverWorks SDK has enabled 11approximately 13,000 different products and services to be incorporated into the Control4 ecosystem;

· I/O Servers. We maintain dedicated IP servers, Zigbee servers, and Z-Wave servers allowing connected homes to communicate with devices on various types of wireless standards; and,

· Cloud-Based Services and Tools. 4Sight is our subscription service that enables end -customers to remotely access, monitor and adjust settings in their homes (such as lights, temperature settings, door locks, gates and cameras), and receive event-based email alerts from their Control4 system. 4Sight also ~~enables~~provides ~~voice control of~~ the ~~Control4~~secure ~~system~~cloud-to-cloud ~~through~~integration ~~Amazon Alexa and allows consumers~~ to ~~personalize~~enable ~~their~~voice ~~automation~~interaction ~~experience~~with ~~through~~a ~~simple~~Control4 ~~homeowner~~system ~~directed~~via ~~programming,~~Amazon® ~~referred to as “When >> Then” automation~~Alexa. BakPak is a customer account management and monitoring system for dealers, enabling rapid remote diagnostics and response to customer connectivity issues, proactive device management, and greater visibility of networks and automation systems within each BakPak-enabled connected home.

Products with Embedded Software

Our products leverage our software platform to provide consumers with a comprehensive and easy-to-use connected home experience. We designed our software platform to be extensible, which has allowed us to improve and augment the functionality of hardware products (both those designed by us and by others) over time. We also design and manufacture our products via contract manufacturers as well as certify partner products for sale through our dealers. Our products and services include:

Controllers. Our controllers are hardware devices running our Director software to monitor, process and automate events, statuses and actions for numerous connected devices and services, creating a comprehensive

Table of Contents

~~products~~connected ~~via~~home ~~contract~~experience. ~~manufacturers~~Currently aswe ~~well~~offer three Entertainment and Automation series controllers: (1) the EA-1 is designed for a single-room audio/video entertainment automation, such as ~~certify~~a ~~partner~~family-room, ~~products~~home-theater, a study, or bedroom; (2) the EA-3 is designed to integrate and control automation in small-to-mid-sized homes; and (3) the EA-5 is designed to integrate and control automation in large homes and estates. In addition, in 2018 we added a new series, Control and Automation controllers, and released the CA-1 controller designed for ~~sale~~entry-level ~~through~~projects ~~our~~for ~~dealers~~homebuilders interested in lighting, temperature control and security. ~~Our~~Controllers ~~products~~are the hub of our systems and ~~services~~represented ~~include:~~ 26% of our total revenue in 2018.

· ~~Controllers~~Interface Devices. ~~Our~~We ~~controllers~~offer ~~run~~touch ~~our Director software to monitor~~panels, ~~process~~handheld ~~and~~remote ~~automate~~controls ~~events, statuses~~ and ~~actions~~keypads ~~for~~as ~~numerous~~interface devices ~~and services, creating a comprehensive connected home experience~~. ~~Currently~~We wealso ~~offer~~develop ~~three Entertainment~~ and ~~Automation~~deliver ~~series~~software ~~controllers:~~applications ~~(1) the EA-1 is designed~~ for aApple ~~single-room~~iOS ~~audio/video~~and ~~entertainment~~Android ~~automation,~~smartphones ~~such~~and astablets athat ~~family-room,~~enable ~~home-theater,~~these apersonal ~~study,~~devices ~~or bedroom; (2) the EA-3 is designed~~ to ~~integrate~~become ~~and~~ control ~~automation~~interfaces ~~in small-~~to~~-mid-sized~~ ~~homes;~~Control4 ~~and~~connected ~~(3) the EA-5 is designed to integrate and control automation in large~~ homes ~~and estates. In addition~~, weboth ~~recently released the CA~~on-1premises ~~controller designed for entry-level projects for homeowners interested in lighting, temperature control~~ and ~~security~~remotely. ~~Controllers~~We ~~are~~also ~~the~~deliver ~~hub~~a ofvoice ~~our~~interface ~~systems~~via ~~and~~the ~~represented~~voice ~~26%~~services offrom ~~our~~Amazon ~~total revenue in 2017~~Alexa.

· Interface Devices. We offer touch panels, handheld remote controls and keypads as interface devices. We also develop and deliver software applications for Apple iOS and Android smartphones and tablets that enable these personal devices to become control interfaces to Control4 connected homes, both on-premises and remotely.

Networking Devices. We offer advanced networking products with a range of routers, switches, wireless access points, power control, and management solutions for the connected home and business.

· Audio Solutions. ~~Our~~Consumers EAare ~~series~~able ~~controllers~~to ~~offer~~listen ~~high-resolution~~to ~~audio~~their ~~with~~personal ~~bit~~music ~~depth~~library upas towell ~~24bit~~as ~~and~~streaming ~~sample~~music ~~rates~~services upvia toour ~~192kHz~~music streamer, which is built into our controllers. Our EA series controllers offer high-resolution audio. In addition, we offer audio distribution and amplification products that scale from single room systems to whole -home distributed audio systems. We offer ~~4-zone~~a ~~and~~variety ~~8-zone~~of power amplifiers, ~~4x4 and 8x8~~ matrix amplifiers, ~~a 16x16 audio~~ matrix ~~switch~~switches, and a single-zone wireless amplifier for retrofit installations. In addition, through our Triad brand, Control4 offers a comprehensive range of high-quality, customizable audio speakers built-to-order in Portland, Oregon and designed for home theaters, family rooms, whole-home or multi-room audio, as well as for outdoor environments. Consumers ~~are able to listen to their personal music library as well as streaming music services via our music streamer, which is built into our controllers. Consumers~~ can also enjoy music available on their smartphone, tablet or computer by wirelessly streaming their selection to their home audio system using AirPlay, DLNA or Bluetooth technologies.

· Video Solutions. We offer a broad line of video matrix switches ~~ranging from 6x6 to 10x10, which includes HDMI as well as HDBaseT switches~~ that ~~are~~include ~~capable of distributing HD video images up to 100 meters over cat5/6e cable. This product line also includes~~ a variety of additional extender kits, mounting kits, and various packages for broad flexibility in offering systems that allow customers to watch what they want, when and where they want to watch it.

Lighting Products. We offer a suite of lighting products that provide personalized control and energy management. Our suite of wireless light switches, dimmers and keypads can revitalize an existing home or complement new home construction. We offer innovative in-wall wireless switches and dimmers for 120V, 240V and 277V electrical loads, which meet the requirements of North America, Europe, Asia and many other international markets. We also offer centralized, wired lighting systems, where all of the lighting control can be managed on a remote panel. In addition to providing lighting control, our keypads can be programmed to operate other systems in the home, such as a lighting scene or audio control.

· Comfort Products. Our wireless multi-stage thermostat, jointly developed with climate control specialist, Aprilaire, is completely programmable, allowing the homeowner to create schedules that fit their lifestyle, comfort and economical needs. Through the Control4 operating system, we also integrate with third-party comfort products (such as automated blinds and pool controls) that provide additional energy savings, convenience and efficiency.

· Security Products. We offer video doorbell station products that allow our customers to see who is at the door from their network-enabled smartphone, tablet or Control4 interface, and we offer a line of IP cameras. In addition, we distribute certified third-party products, including IPnetwork ~~cameras,~~video ~~NVRs~~recorders, deadbolts, motion sensors, garage access systems and water leak detection systems, from our security partners such as Baldwin, Lilin, Nyce, Kwikset and Yale. We also integrate with the top security panel manufacturers such as DSC, Honeywell and Interlogix, including network video recorder products and surveillance cameras sold by five of the top security monitoring manufacturers.

Communication Products. We offer full-motion video and high-quality audio intercom capability through our in-wall and tabletop touchscreens, as well as our exterior weather-resistant video doorbell stations.

Table of Contents

· Communication Products. We offer full motion video and high-quality audio intercom capability through our in-wall and tabletop touchscreens, as well as our exterior weather-resistant video doorbell stations.

Our Distribution Network

We offer our products exclusively through a network of independent dealers that professionally install our products. In 2005, we started selling our solutions through a network of around 450 independent dealers. Since that time, our distribution network has grown to over 5,~~290~~480 active direct dealers and 5043 distributors in ~~101~~106 countries. Our direct independent dealer network is comprised of 4,~~220~~500 dealers offering our full range of products and ~~1,070~~980 dealers selling only the Pakedge and Triad line of products. Our distributors are comprised of 3331 distributors offering our full range of products and 1712 distributors offering only Pakedge and Triad line of products. Dealers range in size from small family businesses to large enterprises.

Our dealers are independent home automation and networking specialists that have significant experience in designing, installing and servicing both low- and high-voltage systems including music, video, security, networking, communications and temperature control. Every authorized dealer of our full line of automation products has gone through extensive training and has passed the necessary certification tests—, either in one of our training facilities located in the United States, ~~the~~Australia, ~~United Kingdom~~China, Germany, ~~Australia,~~India ~~China,~~ or ~~India~~the United Kingdom, or in a training facility operated by one of our 3331 distributors. In order to become certified to sell and install our full line of automation solutions, every installer for each dealer must complete course work and pass pre-training examinations, as well as pass rigorous testing at the conclusion of the multi-day formal training.

We sell directly through dealers in the United States, Australia, Canada, China, Germany, the United Kingdom, ~~Australia, China, Germany~~ and 5057 other countries. We partner with 5043 distributors to serve 4543 additional countries. Together, our independent dealer network and our distributors allow us to service ~~101~~106 countries. Our distributors recruit, train and manage dealers within their region and also help dealers find country-specific solutions for unique needs based on the special home automation market characteristics within each country. In recent years, we have moved more toward a dealer-direct model in specific international regions, and we have added, and continue to add, sales and support staff in Australia, Canada, China, Germany, India and the United Kingdom,. ~~China,~~Most ~~India~~recently we have announced our plans to sell direct-to-dealers in Ireland, ~~Australia~~New Zealand, and ~~Germany~~Switzerland.

During the years ended December 31, ~~2017~~2018, ~~2016~~2017 and ~~2015~~2016, respectively, none of our dealers or distributors accounted for more than 5% of our revenue. None of our dealers or distributors have minimum or long-term purchase obligations. Dealer orders are typically placed on a project-by-project basis. As such, our dealers do not typically carry significant levels of inventory. The resulting just-in-time model helps reduce dealer inventory investment. Our dealers around the world are each responsible for local marketing, selling, installing and servicing our solution for the consumer.

Our Partners

The home automation market is made up of a collection of thousands of electronically controllable products made by hundreds of key manufacturers. We believe that our success has come, in part, due to our ability to establish relationships with many of these manufacturers. As of December 31, ~~2017~~2018, approximately 100 separate manufacturers had formally submitted over 23,~~300~~800 devices to us for Control4 certification so that our worldwide dealer and distributor network can be assured that these third-party devices work uniformly with our platform.

Third-party manufacturers are currently selling over 12,~~130~~150 different products representing 3337 brands (including brands such as Denon, Sony and Yale) through our online store. Our online store provides manufacturers valuable reach into our trained dealer network, and it helps our dealers gain easy access to products that they know are certified by Control4. We also partner with other companies for purposes of strategic initiatives.

Our Research and Development

Our flexible research and development model relies upon a combination of in-house staff and offshore design and manufacturing partners to improve and enhance our existing products and services, as well as develop new products, features and functionality in a cost-effective manner. We believe that our software platform is critical to expanding our leadership position within the ~~mainstream~~ home automation market. As a result, we devote much of our research and development resources to software development. We work closely with our dealers and their consumers to understand their current and future needs and have designed a product development process that captures and integrates feedback from our consumers.

As of December 31, ~~2017~~2018, we had ~~249~~243 employees in our research and development organization, most of whom were located at our headquarters in Salt Lake City, Utah. Our research and development expenses were $4043.6 million in ~~2017~~2018,

Table of Contents

$3640.06 million in ~~2016~~2017, and $3236.40 million in ~~2015~~2016. We intend to continue to invest in research and development to expand our solutions and capabilities in the future.

Our Manufacturing

We outsource most of the manufacturing of most of our hardware products to contract manufacturers. The majority of our hardware products are manufactured ~~by iLife Technology Co., Ltd (“iLife”), Remote Control Systems, Inc. (“RCS”) and Sanmina Corporation (“Sanmina”) at their facilities located~~ in China, ~~and~~South Korea, ~~with~~Taiwan ~~additional~~and ~~manufacturing performed by several other contract manufacturers located throughout Asia~~Thailand. Our ~~agreement~~manufacturing ~~with~~partners ~~iLife~~assemble ~~automatically~~our ~~renews~~products ~~for~~using aour ~~one-year~~design ~~term~~specifications, inquality ~~February~~assurance ~~2018~~programs and will continue to automatically renew for successive one-year periods unless either (i) iLife gives written notice of its intent to terminate the agreement at least 180 days prior to the end of the then current term, or (ii) Control4 gives written notice of its intent to terminate the agreement at least 30 days prior to the intended termination datestandards. ~~Our~~These ~~agreement~~partners ~~with~~procure ~~RCS~~components ~~automatically renewed for a one-year term in September 2017~~ and ~~will~~assemble ~~continue~~our toproducts ~~renew~~based ~~for~~on ~~successive~~our ~~one-year~~demand ~~periods~~forecasts. ~~unless~~These ~~either~~forecasts ~~party~~represent ~~gives~~our ~~written~~estimates ~~notice~~ of ~~its~~future ~~intent~~demand tofor ~~terminate~~our ~~the~~products ~~agreement~~based atupon ~~least~~historical ~~120 days~~trends ~~prior~~and toanalysis ~~the~~from ~~end~~our ofsales ~~the~~and ~~then~~product ~~current~~management ~~term~~functions. ~~Our~~ ~~agreement~~We ~~with~~maintain ~~Sanmina~~fulfillment ~~automatically~~centers ~~renewed~~in ~~for~~Salt aLake ~~one-year~~City, ~~term~~Utah; ~~in June 2017~~Hebron, ~~and~~Kentucky; ~~will~~York, ~~continue~~England; toand ~~automatically renew for successive one-year terms unless either party gives written notice of its intent to terminate the agreement at least 90 days prior to the end of the then current term~~Melbourne, ~~or at any other time with at least 120 days’ written notice~~Australia.

~~Our~~We ~~manufacturing~~have ~~partners~~multiple ~~assemble~~sources ~~our~~for ~~products~~most ~~using~~of our ~~design~~components. ~~specifications~~However, ~~quality~~we ~~assurance~~depend ~~programs~~on single source manufacturers for certain critical components, including processors and ~~standards~~touch panels. ~~These~~We ~~partners~~can ~~procure~~choose ~~components~~to change processor and ~~assemble~~memory modules for any of our products, ~~based~~but onbecause ~~our~~of ~~demand~~high ~~forecasts.~~implementation ~~These~~costs ~~forecasts~~and ~~represent~~significant ~~our~~lead ~~estimates~~times, we generally choose to make these changes only upon development of ~~future~~new ~~demand~~products. We also rely on certain custom connectors, cables and mechanical enclosures for our hardware products ~~based~~that ~~upon~~are ~~historical~~single ~~trends~~sourced ~~and~~because ~~analysis~~of the high tooling costs of sourcing the components from ~~our~~multiple ~~sales~~suppliers. In each of these cases, we own the drawings and ~~product~~design ~~management~~of ~~functions~~these custom components. We ~~maintain~~also ~~fulfillment~~manufacture ~~centers~~and infulfill ~~Salt~~custom ~~Lake~~builds ~~City,~~for ~~Utah;~~our ~~York,~~high-end ~~England;~~Triad ~~and~~speakers ~~Melbourne~~in our facility in Portland, ~~Australia~~Oregon.

We have multiple sources for most of our components. However, we depend on single source manufacturers for certain critical components, including processors and touch panels. We can choose to change processor and memory modules for any of our products, but because of high implementation costs and significant lead times, we generally choose to make these changes only upon development of new products. We also rely on certain custom connectors, cables and mechanical enclosures for our hardware products that are single sourced because of the high tooling costs of sourcing the components from multiple suppliers. In each of these cases, we own the drawings and design of these custom components. We also manufacture custom builds for our high-end Triad speakers in our facility in Portland, Oregon.

Our Sales and Marketing

Our marketing team supports our sales channel with dealer-directed advertising and promotions, consumer lead-generation, social media ~~engagements~~placement and training events, as well as the design and production of consumer-facing, customizable collateral, point-of-sale video and showroom signs and advertising. Our website is the anchor of our online and social media strategy, from which we qualify and then direct leads to our independent dealers. ~~Control4’s~~Our bi-annual ~~magazine~~publication, ~~Home~~Control4 Smart Home Magazine, features lifestyle stories of Control4 installations from around the world and is available for download on our website and helps drive demand for our solutions and leads for our dealers.

In 2018, we unveiled Control4 Certified Showrooms built by Control4 authorized dealers at their locations across the United States, Australia, Canada, China, and the United Kingdom, revolutionizing how people learn about, experience, and interact with Control4 smart home solutions The Control4 Certified Showroom program is designed to direct homeowners, architects, and designers in the market for smart home solutions to a location where they can experience Control4 solutions in a showroom environment.

We continue to focus on lead generation through online marketing and qualifying inbound leads for our dealers. As interested consumers go online to research home automation solutions, we help direct them to dealers in their markets. To better qualify these leads and direct them to interested dealers, we employ a small team of telemarketers. In addition to speaking directly to prospects, these inside representatives work closely with dealers, to assist them in direct customer outreach.

We are active participants at global industry conferences and maintain a significant presence at Custom Electronics Design and Installation Association (“CEDIA”) Expo trade shows. Beyond CEDIA Expo in the United States, we exhibit at ISE, the annual industry trade show held in Amsterdam, as well as participate in CEDIA-specific events and tradeshows throughout China to assist in the recruitment and training of new dealers in that region. We also maintain a presence at trade associations to drive awareness with builders, architects and designers. We are frequently featured in the trade press and maintain strong relationships with the industry’s key analysts and associations. We believe that partnering with device manufacturers, leveraging co-marketing partnerships, expanding our sales channels and increasing our brand recognition among consumers are key components of our growth strategy.

Table of Contents

Our Competition

The market for home automation systems is fragmented, highly competitive and continually evolving. Our current competitors fall into several categories:

· providers that focus primarily on the professional installation segment of the home automation market, including Crestron, Elan, Lutron, Savant, and ~~Savant~~SnapAV;

· providers of point products that address a narrow set of networking, entertainment or control capabilities, including Logitech, Luxul, Nest, Ruckus, Ring, Sonance, Sonos and Universal Remote Control; 10

· Table ~~providers~~ of ~~managed home control and security services, including ADT, AT&T, Comcast and Vivint (which in turn may utilize third-party software from companies including Alarm.com and iControl);~~Contents

· providers of ~~device~~point products that address a narrow set of networking, entertainment or control ~~platforms~~capabilities, ~~such~~including asLogitech, ~~Apple~~Luxul, ~~HomeKit~~Ruckus, ~~and~~Sonance, ~~SmartThings;~~Sonos and Universal Remote Control;

providers of managed home control and security services, including ADT, AT&T, Comcast and Vivint (which in turn may utilize third-party software from companies including Alarm.com); and

large technology companies such as Amazon, Apple, Google and Samsung that offer device control capabilities within some of their own products, applications and services, and are engaged in ongoing development efforts to address the broader home automation market.

In the past, companies that provide popular point solutions have eliminated or restricted, and may again eliminate or restrict, our ability to control and integrate with their products.

Given the growth dynamics of this market, there are many new and existing companies targeting portions of the ~~mainstream~~ home automation market. To the extent that consumers adopt products, applications and services from a single large technology company, or if any of these companies broaden their home automation capabilities, we will face increased competition.

The principal competitive factors in our market include the:

breadth of home automation capabilities provided;

· simplicity of use and installation, both for our professional installation network and our end-users;

interoperability with third-party devices;

price and total cost of ownership;

sales reach and local installation and support capabilities; and

brand awareness and reputation.

We believe that our home automation solution competes favorably with respect to these factors. Nevertheless, many of our competitors have substantially greater financial, technical and other resources, greater name recognition, larger sales and marketing budgets, broader distribution channels, and larger and more mature intellectual property portfolios than we do.

Our Intellectual Property

Our success and ability to compete effectively depend in part on our ability to protect our proprietary technology and to establish and adequately protect our intellectual property rights. To accomplish these objectives, we rely on a combination of patent, trademark, copyright and trade secret laws in the United States and other jurisdictions, as well as license agreements, confidentiality agreements and other contractual protections.

As of December 31, 2018, we owned 66 issued U.S. patents (20 of which are design patents) that are scheduled to expire between 2025 and 2036, with respect to utility patents, and between 2020 and 2029, with respect to design patents. We continue to file patent applications in multiple jurisdictions and as of December 31, 2018, we had 10 patent applications published, 4 utility patent applications pending and 2 provisional patent applications pending in the United States. We also had 15 issued patents and 1 pending patent application under foreign jurisdictions and treaties such as Australia, Canada, France, Germany, New Zealand, the United Kingdom, and the European Patent Convention.

We also rely on several registered and unregistered trademarks to protect our brand. As of December 31, 2018, we had the following registered trademarks: (a) Control4, Control4 My Home, the Control4 Design, the 4 Design, 4Store, 4Sight, Mockupancy, Pakedge, Pakedge & Design, Pakedge SectorMaxx, Pakedge TruStream, Smartwav, Stealth Ports, Triad, the Triad Design, the Triangle Design, BakPak, and the BakPak and Pakedge Device&Software Inc. Design in the United States, (b) Control4 in Brazil, Canada, China, the European Union, India and Mexico, (c) the Control4 Design in China, (d) the 4 Design in Australia, Brazil, China, the European Union, India and Mexico, (e) Pakedge in Australia and the European Union, and (f) Triad in Australia and the European Union. As of December 31, 2018, we also had 7 trademark applications, for

Table of Contents

Asvarious ~~of December 31~~marks, 2017, we owned 61 issued U.S. patents (20 of which are design patents) that are scheduled to expire between 2025 and 2034, with respect to utility patents, and between 2020 and 2029, with respect to design patents. We continue to file patent applications in multiple jurisdictions and as of December 31, 2017, we had 10 patent applications published and 7 patent applications pending in ~~the United States. We also had 15 issued patents and 1 pending patent application under foreign jurisdictions and treaties such as Canada,~~ Australia, ~~New Zealand~~China, the ~~United~~European ~~Kingdom~~Union, ~~Germany,~~India ~~France~~ and the ~~European~~United ~~Patent Convention~~States.

We also rely on several registered and unregistered trademarks to protect our brand. As of December 31, 2017, we had the following registered trademarks: (a) Control4, Control4 My Home, the Control4 Design, the 4 Design, 4Store, 4Sight, Mockupancy, Pakedge, Pakedge SectorMaxx, Pakedge TruStream, Smartwav, Stealth Ports, Triad, the Triad Design, the Triangle Design, BakPak, and the BakPak and Pakedge Device&Software Inc. Design in the United States, (b) Control4 in Brazil, Canada, China, the European Union, India and Mexico, (c) the Control4 Design in China, and (d) the 4 Design in Brazil, China, the European Union and Mexico. As of December 31, 2017, we also had 12 trademark applications, for various marks, pending in Australia, China, the European Union, India and the United States.

We have filed for U.S. copyright protection for our source code for all major releases of our software. We also license software from third parties for integration into or use with our products, including open-source software and other commercially available software.

In addition, we seek to protect our intellectual property rights by requiring our employees and independent contractors involved in development to enter into agreements acknowledging that all inventions, trade secrets, works of authorship, developments, concepts, processes, improvements and other works generated by them on our behalf are our intellectual property, and assigning to us any rights, including intellectual property rights, that they may claim in those works.

Employees

As of December 31, ~~2017~~2018, we had ~~635~~670 full-time employees, including ~~526~~555 employees in the United States and ~~109~~115 employees outside the United States. None of our employees are currently represented by a labor union or trade council with respect to his or her employment with us. We have not experienced any work stoppages and we consider our relations with our employees to be good.

Available Information

Our website is located at www.Control4.com, and our investor relations website is located at www.investor.Control4.com. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and our ~~Proxy~~proxy ~~Statements~~statements (including any exhibits, annexes, and amendments related to such reports and statements) are available through our investor relations website, free of charge, after we file them with, ~~the~~or ~~Securities~~furnish ~~and~~them ~~Exchange~~to, ~~Commission~~the (“SEC”). You may also visit the SEC's website at www.sec.gov to view all of the reports we file or furnish with the SEC. You may read and copy any materials we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. You can get information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

We webcast via our investor relations website our earnings calls and certain events we participate in or host with members of the investment community. Our investor relations website also provides notifications of news or announcements regarding our financial performance, including SEC filings, investor events, press and earnings releases, and blogs. Further corporate governance information, including our corporate governance guidelines and board committee charters, is also available on our investor relations website under the heading "Corporate Governance.” The content of our websites is not incorporated by reference into this Annual Report on Form 10-K or in any other report or document we file with the SEC, and any references to our websites are intended to be inactive textual references only.

WeAs ~~are an emerging growth company as defined in the Jumpstart Our Business Startups Act~~ of ~~2012~~December 31, ~~(the~~2018, ~~“JOBS Act”). We will remain an emerging growth company until~~ the ~~earliest to occur of: the~~ last day of the fiscal year inending ~~which~~after ~~we have more than $1.0 billion in annual revenue;~~ the ~~date~~fifth weanniversary ~~qualify~~of asour ainitial ~~“large~~public ~~accelerated filer~~offering,” ~~with~~we atare ~~least~~no ~~$700 million~~longer ofconsidered ~~equity~~an ~~securities~~emerging ~~held~~growth bycompany ~~non-affiliates determined~~ as ofdefined ~~the~~in ~~last business day of~~ the ~~previous~~Jumpstart ~~second~~Our ~~fiscal~~Business ~~quarter;~~Startups ~~the~~Act ~~issuance, in any three-year period, by us~~ of ~~more~~2012 ~~than $1.0 billion in non-convertible debt securities; or December 31, 2018,~~ (the ~~last~~“JOBS ~~day of the fiscal year ending after the fifth anniversary of our initial public offering~~Act”).

Table of Contents

ITEM 1A. Risk Factors

A description of certain risks and uncertainties associated with our business is set forth below. You should carefully consider such risks and uncertainties, together with the other information contained in this report, and in our other public filings. Factors that could cause our business, financial condition or operating results to differ materially from the plans, projections and other forward-looking statements included in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report and in our other public filings include, but are not limited to, the following risks and uncertainties, which could cause substantial harm to our business, financial condition or operating results and the market price of our stock to decline, perhaps significantly.

Risks Related to Our Business and Industry

We have incurred operating losses in the past, may incur operating losses in the future, and may not achieve or maintain profitability.

We began our operations in 2003. For most of our history, we have experienced net losses and negative cash flows from operations. As of December 31, 2017, we had an accumulated deficit of $67.0 million. We expect our operating expenses to increase in the future as we expand our operations. If our revenue does not grow to offset any increased expenses, we will not be profitable. After achieving profitability in 2013 and 2014 of $3.5 million and $8.2 million respectively, we sustained a net loss of $1.7 million in 2015. Our net income for the years ended December 31, 2016 and 2017 was $13.0 million and $16.0 million, respectively, but we may incur significant losses in the future for a number of reasons, including without limitation the other risks and uncertainties described herein. Additionally, we may encounter unforeseen operating or legal expenses, difficulties, complications, delays in manufacturing and selling our products and other unknown factors that may result in losses in future periods. If these losses exceed our expectations or our revenue growth expectations are not met in future periods, our profitability will be harmed and our stock price may fall.

The markets in which we participate are highly competitive and many companies, including large technology companies, retailers, broadband and security service providers, as well as other managed service providers, are actively targeting the home automation market. Our failure to differentiate ourselves and compete successfully against these companies would make it difficult for us to add and retain consumers, and our sales and profitability could be adversely affected.

The market for home automation is fragmented, highly competitive and continually evolving. A number of technology companies, including industry leaders such as Amazon, Apple, Google, Honeywell, Lutron and Samsung, offer device control capabilities in some of their products, applications and services and are engaged in ongoing development efforts to address even broader segments of the home automation market. These large technology companies already have broad consumer awareness and sell a variety of devices for the home, and consumers may choose their offerings instead of ours, even if we offer broader interoperability or superior products and services. Additionally, these and other companies may further expand into our industry by developing additional solutions or by acquiring other providers. Similarly, many managed service providers, such as cable TV, telephone and security companies, are offering services that provide device control capability within the home for an additional monthly service fee. For example, Comcast’s Xfinity service offers residential security, energy and automation services, and Vivint ~~has~~and ~~made~~ADT ahave made significant ~~effort~~efforts to market ~~its~~ smart home services that incorporate these companies’ traditional security offerings. These managed service providers have the advantage of leveraging their existing consumer base, network of installation and support technicians and name recognition to gain traction in the home automation market. In addition, consumers may prefer the monthly service fee with little to no upfront cost offered by some of these managed service providers over a larger upfront cost with little to no monthly service fees.

We expect competition from these large technology companies, retailers and managed service providers to increase in the future. This increased competition could result in pricing pressure, reduced sales, lower margins or the failure of our solutions to achieve or maintain broad market acceptance. To remain competitive and to maintain our position as a leading provider of professionally installed automation and control solutions for the connected home, we will need to invest continuously in product development, marketing, dealer and distributor service and support, and product delivery infrastructure. We may not have sufficient resources to continue to make the investments in all of the areas needed to maintain our competitive position. In addition, many of our competitors have longer operating histories, greater name recognition, larger consumer bases and significantly greater financial, technical, sales, marketing and other resources than us, which may provide them with an advantage in developing, marketing or servicing new solutions. Increased competition could reduce our market share, revenue and operating margins, increase our operating costs, harm our competitive position or otherwise harm our business and results of operations.

Consumers may choose to adopt point products that provide control of discrete home functionality or do-it-yourself (“DIY”) home automation solutions rather than adopt our unified, professionally-installed home automation solution. If we are unable to increase market acceptance of the benefits of our unified solution, our revenue may not continue to grow, or it may decline.

Many vendors have emerged, and may continue to emerge, to provide point products with advanced functionality for use in the home, such as a thermostat, lighting, doorbell or alarm system that can be controlled by an application on a smartphone or control panel. We expect more and more consumer electronic and consumer appliance products to be network-aware and connected—each very likely to have its own smart device (phone or tablet) application. Consumers may be attracted to the relatively low costs and ease of installation of these point products and the ability to expand their home control solution over time with minimal upfront costs, despite the disadvantages of this approach. While we have built our solution to be

Table of Contents

~~share~~flexible and support many third-party point products, the adoption of these products may reduce the revenue ~~and~~we ~~operating~~receive ~~margins~~for each installation. It is therefore important that we provide attractive top-quality products in many areas, ~~increase~~such ~~our~~as ~~operating~~networking, ~~costs~~lighting, ~~harm~~audio, video, thermostats and security, and establish broad market awareness and acceptance of these solutions as well as the advantages of integrating them in a unified solution. If a significant number of consumers in our ~~competitive~~target ~~position~~market choose to rely solely on the functionality included in point products or ~~otherwise~~DIY ~~harm~~solutions rather than acquiring our unified automation solution, then our business, financial condition and results of operations will be harmed, and we may not be able to achieve sustained growth or our business may decline.

~~Consumers~~Providers ~~may~~of ~~choose~~luxury tointegrated ~~adopt~~installations ~~point~~with ~~products~~long ~~that~~operating ~~provide~~histories, ~~control~~established ofmarkets, ~~discrete~~broad ~~home~~user ~~functionality~~bases ~~rather~~and ~~than~~proven ~~adopt~~consumer ~~our~~acceptance, ~~unified~~may ~~home~~be ~~automation~~successful ~~solution.~~in Ifexpanding wetheir ~~are~~offerings ~~unable~~in tothe ~~increase~~home automation market, ~~acceptance~~or ofotherwise ~~the~~compete ~~benefits~~against of our ~~unified solution~~solutions, ~~our~~which ~~revenue~~ may ~~not~~reduce ~~continue~~our tomarket ~~grow,~~share orand itharm ~~may~~our ~~decline~~growth and future prospects.

Many ~~vendors~~companies ~~have~~with ~~emerged,~~which ~~and~~we ~~may~~directly ~~continue~~compete tohave ~~emerge,~~been tooperating ~~provide~~in ~~point~~this ~~products~~industry ~~with advanced functionality~~ for ~~use~~many ~~in the home~~years, ~~such~~and as a ~~thermostat~~result, lighting or alarm system that can be controlled by an application on a smartphone. We expect more and more consumer electronic and consumer appliance products to be network-aware and connected—each very likely to have ~~its~~established ~~own~~significant ~~smart~~name ~~device~~recognition ~~(phone~~in ~~or tablet) application. Consumers may be attracted to~~ the ~~relatively low costs of these point products and the ability to expand their~~ home ~~control~~automation ~~solution~~industry. ~~over~~For ~~time~~example, ~~with minimal upfront costs~~Crestron, ~~despite~~a ~~the~~provider ~~disadvantages~~ of ~~this~~luxury ~~approach.~~integrated ~~While we have built our solution to be flexible and support many third-party point products~~installations, ~~the~~has ~~adoption~~been ofin ~~these~~business ~~products may reduce the revenue we receive~~ for ~~each~~over ~~installation.~~40 years ~~It is therefore important that we provide attractive top-quality products in many areas, such as networking, lighting, audio, video, thermostats~~ and ~~security,~~has ~~and~~become ~~establish~~an ~~broad~~established ~~market~~presence ~~awareness and acceptance of these solutions as well as the advantages of integrating them~~ in ~~a unified solution. If a significant number of consumers in our target market choose to rely solely on~~ the ~~functionality~~home ~~included~~and incommercial ~~point products rather than acquiring our unified~~ automation ~~solution, then our business, financial condition and results of operations will be harmed, and we may not be able to achieve sustained growth or our business may decline~~industry.

~~Providers~~New ofentrants ~~luxury integrated installations with long operating histories, established markets, broad user bases and proven consumer acceptance,~~ may be successful in ~~expanding~~penetrating ~~their offerings in~~ the ~~mainstream~~ home automation market, ~~or otherwise compete against our solutions,~~ which may reduce our market share and harm our growth and future prospects.

Many companies with which we directly compete have been operating in this industry for many years, and as a result, have established significant name recognition in the home automation industry. For example, Crestron, a provider of luxury integrated installations, has been in business for over 40 years and has become an established presence in the home automation industry. Given the ~~strong~~ growth potential of the market, we expect there tomay be many new entrants in the future. To the extent these providers are able to develop more affordable or attractive products or otherwise compete with our ~~solutions across any of our target demographics~~business, our growth may be constrained and our business could suffer.

~~Since~~We wehave ~~rely~~incurred onoperating ~~third-party~~losses ~~dealers~~in ~~and~~the ~~distributors to sell and install our solutions~~past, wemay doincur ~~not~~operating ~~have~~losses ain ~~direct~~the ~~sales pipeline~~future, ~~which~~and ~~makes~~may itnot ~~difficult~~achieve ~~for~~or usmaintain ~~to accurately forecast future sales and correctly predict manufacturing requirements~~profitability.

We ~~depend~~began on our ~~independent~~operations ~~dealer~~in ~~and~~2003. ~~distributor~~For ~~network~~most toof ~~sell~~our history, we have experienced net losses and ~~install~~negative ~~our~~cash ~~solution~~flows from operations. As aof ~~result~~December 31, 2018, we dohad ~~not~~an ~~directly~~accumulated ~~develop~~deficit orof ~~control~~$28.4 million. We expect our ~~sales~~operating ~~pipeline,~~expenses ~~making~~to itincrease ~~difficult~~in ~~for~~the usfuture toas ~~accurately~~we ~~predict~~expand ~~future~~our ~~sales~~operations. InIf ~~addition,~~our ~~because~~revenue ~~the~~does ~~production~~not ofcontinue ~~certain~~to ofgrow ~~our~~to ~~products~~offset ~~requires~~any ~~long~~increased ~~lead times~~expenses, we ~~enter~~will ~~into~~not ~~agreements~~continue ~~for~~to ~~the~~be ~~manufacture~~profitable. ~~and~~After ~~purchase~~achieving ofprofitability ~~certain~~in of2013 ~~our~~and ~~products~~2014 ~~well~~of in$3.5 ~~advance~~million ofand ~~the~~$8.2 ~~time~~million inrespectively, ~~which~~we ~~those~~sustained ~~products~~a ~~will~~net beloss ~~sold~~of $1.7 ~~These~~million ~~contracts~~in ~~are~~2015. ~~based~~Our onnet ~~our~~income ~~best~~for ~~estimates~~the ofyears ~~our~~ended ~~near-term~~December ~~product~~31, ~~needs.~~2016, If2017 weand ~~underestimate~~2018 ~~consumer~~was ~~demand~~$12.3 million, we$15.5 ~~may~~million, ~~forego~~and ~~revenue~~$43.8 ~~opportunities~~million, ~~lose~~respectively, ~~market~~and ~~share~~consequently ~~and~~we ~~damage~~released our ~~relationships~~U.S. ~~Conversely,~~federal ifand westate ~~overestimate~~deferred ~~consumer~~tax ~~demand~~asset valuation allowance in 2018. However, we may ~~purchase~~incur ~~more~~significant ~~inventory~~losses ~~than~~in wethe ~~are~~future ~~able~~for toa ~~sell~~number atof ~~any~~reasons, ~~given~~including ~~time,~~without orlimitation atthe ~~all~~other risks and uncertainties described herein. IfAdditionally, we ~~fail~~may toencounter ~~accurately~~unforeseen ~~estimate~~operating ~~demand~~or ~~for~~legal expenses, difficulties, complications, delays in manufacturing and selling our products, weand ~~could~~other ~~have~~unknown ~~excess~~factors orthat ~~obsolete~~may ~~inventory,~~result ~~resulting~~in losses in afuture ~~decline~~periods. inIf ~~the~~these ~~value~~losses ofexceed our ~~inventory,~~expectations ~~which~~or ~~would~~our revenue ~~increase~~growth expectations are not met in future periods, our ~~costs~~profitability ofwill ~~revenues~~be harmed and ~~reduce~~we may need to establish a valuation allowance for our ~~liquidity~~U.S. ~~Our~~federal ~~failure~~and tostate ~~accurately~~deferred ~~manage~~taxes ~~inventory~~assets ~~relative~~again toin ~~demand~~the ~~would~~future ~~adversely~~and ~~affect~~ our ~~results~~stock ofprice ~~operations~~may fall.

We have relatively limited visibility regarding the consumers that ultimately purchase our products, and we often rely on information from third-party dealers and distributors to help us manage our business. If we are unable to obtain timely or accurate information, our ability to quickly react to market changes and effectively manage our business may be harmed.

Table of Contents

addition, from time to time we collect information directly from consumers through surveys that we conduct and other methods, but the consumers who chose to participate self-select and vary by geographic region and from period to period, which may impact the usefulness of the results. If we do not receive consumer information on a timely or accurate basis, or if we do not properly interpret this information, our ability to quickly react to market changes and effectively manage our business may be harmed.

Our quarterly results of operations have fluctuated and may continue to fluctuate. As a result, we may fail to meet or exceed the expectations of investors or securities analysts, which could cause our stock price to decline.

Our quarterly revenue and results of operations have fluctuated and may continue to fluctuate as a result of a variety of factors, many of which are outside of our control. In the past when our quarterly revenue or results of operations have fallen below the consensus expectations of securities analysts, the price of our common stock has declined. If our quarterly revenue or results of operations fall below the consensus expectations of investors or securities analysts in the future, the price of our common stock could decline again, perhaps substantially. Fluctuations in our results of operations may be due to a number of factors, including but not limited to:

Demand for and market acceptance of our solutions;

Our ability to continue to develop and maintain relationships with productive independent dealers and distributors and incentivize them to continue to market, sell, install and support our solutions;

The ability of our contract manufacturers to continue to manufacture high-quality products, and to supply sufficient products to meet our demands;

Table of Contents

The timing and success of acquisitions, new product introductions or upgrades by us or by our competitors;

The strength of regional, national and global economies;

The strength of the U.S. dollar relative to other currencies and the impact this has on dealer and distributor margins and their ability to competitively sell our products to consumers;

The impact of harsh seasonal weather, natural disasters or manmade problems such as terrorism;

Changes in our business and pricing policies, or those of our competitors;

Competition, including entry into the industry by new competitors and new offerings by existing competitors;

The impact of seasonality on our business;

· A systemic impairment or failure of one or more of our products that erodes dealer and/or end -user confidence;

Changes in applicable tax and tariff rates;

Political or regulatory changes in the markets in which we operate;

The cost and availability of component parts used in our products;

Aggressive business tactics by our competitors, including: selling at a discount, offering products on a bundled basis at no charge, extensive marketing efforts, and providing financing incentives;

The amount and timing of expenditures, including those related to expanding our operations, increasing research and development, introducing new solutions or costs related to disputes and litigation; and

Temporary discounts or permanent changes in the price or payment terms for our solutions.

Due to the foregoing factors and the other risks discussed herein, you should not rely on quarter-to-quarter comparisons of our results of operations as an indication of our future performance, nor should you consider any revenue growth or results of operations in any quarter to be indicative of our future performance.

Table of Contents

If we are unable to develop new solutions, sell our solutions into new markets, or further penetrate our existing markets, our revenue may not grow as expected or it may decline.

Our ability to increase sales will depend in large part on our ability to enhance and improve our solutions, to introduce new solutions in a timely manner, to sell into new markets, and to further penetrate our existing markets. The success of any enhancement or new product or solution depends on several factors, including the timely completion, introduction and market acceptance of enhanced or new solutions, the ability to attract, retain and effectively train product development, sales and marketing personnel (among others), the ability to develop relationships with independent dealers and distributors and the effectiveness of our marketing programs. Any new product or solution we develop or acquire may not be introduced in a timely or cost-effective manner, and may not achieve the broad market acceptance necessary to generate significant revenue. Any new markets into which we attempt to sell our solutions, including new vertical markets and new countries or regions, may not be receptive. Our ability to further penetrate our existing markets depends on the quality of our solutions and our ability to design our solutions to meet consumer demand. Moreover, we are frequently required to enhance and update our solutions as a result of changing standards and technological developments, which makes it difficult to recover the cost of development and forces us to continually qualify new solutions with our consumers. If we are unable to successfully develop or acquire new solutions, enhance our existing solutions to meet consumer requirements in a timely manner, sell solutions into new markets, or sell our solutions to additional consumers in our existing markets, our revenue may not grow as expected or it may decline.

~~Our success depends, in part, on our ability to develop and expand our global network of independent dealers and distributors.~~15

AsTable of December 31, 2017, we have over 5,290 active direct dealers and 50 distributors authorized to sell, install and support our solutions. We rely on our independent dealers and distributors to provide consumers with a successful Control4 home automation experience. In some cases, dealers may choose not to offer our solution and instead offer a product from one of our competitors or, in other cases, the dealer may simply discontinue its operations. In order to continue our growth and expand our business, it is important that we continue to add new dealers and distributors and ensure that most of our existing relationships remain productive. We must also work to expand our network of dealers and distributors to ensure that we have sufficient geographic coverage and technical expertise to address new markets and technologies. While it is difficult to estimate the total number of available dealers in our markets, there are a finite number of dealers that are able to perform the types of technical installations required for home automation systems. In the event that we saturate the available dealer pool, or if market or other forces cause the available pool of dealers to decline, it may be increasingly difficult to grow our business. As consumers’ home automation options grow, it is important that we enhance our dealer footprint by broadening the expertise of our dealers, working with larger and more sophisticated dealers and distributors and expanding our line of mainstream consumer products that our dealers and distributors offer. If we are unable to expand our network of independent dealers and distributors, or maintain the relationships with our existing dealers and distributors, our business could be harmed.Contents

We rely on our independent dealers and distributors to sell our solutions, and if our dealers and distributors fail to perform, our ability to sell and distribute our products and services will be limited, and our results of operations may be harmed.

Substantially all of our revenue is generated through the sales of our solutions by our authorized dealers and distributors. Our dealers and distributors are independent businesses that voluntarily sell our products as well as the products of other companies to consumers. We provide our dealers and distributors with specific training programs to assist them in selling, installing and servicing our products, and we also provide our dealer-network with leads to potential customers which we generate through our internal marketing efforts, but we cannot assure that these steps will be effective. We have observed, and expect to continue to observe, high volatility in the monthly, quarterly and annual sales performance of individual dealers and distributors. Although we can make estimated forecasts of cumulative sales of large numbers of dealers and distributors, we cannot assure their accuracy collectively or individually. Accordingly, we may not be able to reduce or slow our spending quickly enough if our actual sales fall short of our expectations. As a result, we expect that our revenues, results of operations and cash flows may fluctuate significantly on a quarterly basis. We believe that period-to-period comparisons of our revenues, results of operations and cash flows ~~may not be meaningful and~~ should not be relied upon as an indication of future performance.

Our independent dealers and distributors may be unsuccessful in marketing, selling, installing and supporting our products and services. If we are unable to provide high-quality products in a timely manner at competitive prices and to develop and maintain effective sales incentive programs for our dealers and distributors, we may not be able to incentivize them to sell our products to consumers. Our dealers and distributors may also market, sell and support products and services that are competitive with ours, and may devote more resources to the marketing, sales, and support of such competitive products. Our dealers and distributors may have incentives to promote our competitors’ products to the detriment of our own, or may cease selling our products altogether. Our agreements with our dealers and distributors may generally be terminated for any reason by either party with advance notice. We cannot assure that we will retain these dealers and distributors, or that we will be able to secure additional or replacement dealers and distributors.

In addition, while we take certain steps to protect ourselves from liability for the actions of our dealers and distributors, such as including contractual provisions limiting our liability with both consumers and dealer/distributors, consumers may seek to recover amounts from us for any damages caused by independent dealers in connection with system installations, or the failure of a system to perform properly due to an incorrect installation by a dealer, and, in the event of litigation with respect to these matters, we cannot guarantee that our contractual protections will be enforced. Furthermore, dealers and distributors may initiate claims against us related to any failure or perceived failure to operate our business in accordance with our contracts and the law. In addition, our independent dealers and distributors may use our name and our brand in ways we do not authorize, and any such improper use may harm our reputation or expose us to liability for their actions.

If we fail to effectively manage our existing sales channels then our results of operations may be harmed.

Our success depends, in part, on our ability to develop and expand our global network of independent dealers and distributors.

As of December 31, 2018, we have over 5,480 active direct dealers and 43 distributors authorized to sell, install and support our solutions. We rely on our independent dealers and distributors to provide consumers with a successful Control4 home automation experience. In some cases, dealers may choose not to offer our solution and instead offer a product from one of our competitors or, in other cases, the dealer may simply discontinue its operations. In order to continue our growth and expand our business, it is important that we continue to add new dealers and distributors and ensure that most of our existing relationships remain productive. We must also work to expand our network of dealers and distributors to ensure that we have sufficient geographic coverage and technical expertise to address new markets and technologies. While it is difficult to estimate the total number of available dealers in our markets, there are a finite number of dealers that are able to perform the types of technical installations required for home automation systems. In the event that we saturate the available dealer pool, or if market or other forces cause the available pool of dealers to decline, it may be increasingly difficult to grow our business. As consumers’ home automation options grow, it is important that we enhance our dealer footprint by broadening the expertise of our dealers, working with larger and more sophisticated dealers and distributors and expanding our line of consumer products that our dealers and distributors offer. If we are unable to expand our network of independent dealers and distributors, or maintain the relationships with our existing dealers and distributors, our business could be harmed.

Table of Contents

~~that~~ Since ~~are~~we ~~competitive~~rely ~~with~~on ours, and may devote more resources to the marketing, sales, and support of such competitive products. Our dealers and distributors may have incentives to promote our competitors’ products to the detriment of our own, or may cease selling our products altogether. Our agreements with our dealers and distributors may generally be terminated for any reason by either third-party ~~with advance notice. We cannot assure that we will retain these~~ dealers and distributors, ~~or that we will be able~~ to ~~secure~~sell ~~additional or replacement dealers~~ and ~~distributors.~~install ~~For~~our ~~example~~solutions, ~~in September 2017,~~ we ~~announced~~do ~~that~~not wehave ~~were transitioning from~~ a direct~~-to-dealer~~ ~~to a single distributor~~ sales ~~model~~pipeline, inwhich ~~India.~~makes ~~This~~it ~~transition~~difficult ~~may~~for ~~create~~us ~~disruption~~to inaccurately ~~the~~forecast ~~established~~future ~~channels and our~~ sales and ~~results~~correctly ofpredict ~~operations~~manufacturing ~~may be impacted in connection with this or any similar change in our sales process in the future~~requirements.

InWe ~~addition,~~depend ~~while~~on weour ~~take~~independent ~~certain~~dealer ~~steps~~and distributor network to ~~protect~~sell ~~ourselves~~and ~~from~~install ~~liability~~our ~~for~~solution. ~~the~~As ~~actions~~a ofresult, ~~our~~we ~~dealers~~do ~~and~~not ~~distributors,~~directly ~~such~~develop asor ~~including~~control ~~contractual~~our ~~provisions~~sales ~~limiting~~pipeline, ~~our~~making ~~liability~~it ~~with~~difficult ~~both~~for ~~consumers~~us ~~and~~to ~~dealer/distributors,~~accurately ~~consumers~~predict ~~may~~future ~~still~~sales. ~~seek~~In toaddition, ~~recover~~because ~~amounts~~the ~~from~~production usof ~~for~~certain ~~any~~of ~~damages~~our ~~caused~~products byrequires ~~independent~~long ~~dealers~~lead intimes, ~~connection~~we ~~with~~enter ~~system~~into ~~installations,~~agreements orfor the ~~failure~~manufacture and purchase of acertain ~~system~~of toour ~~perform~~products ~~properly~~well ~~due~~in toadvance anof ~~incorrect~~the ~~installation~~time byin awhich ~~dealer,~~those ~~and,~~products inwill ~~the~~be ~~event~~sold. These contracts are based on our best estimates of ~~litigation~~our ~~with~~near-term ~~respect~~product toneeds. ~~these~~If ~~matters~~we underestimate consumer demand, we ~~cannot~~may ~~guarantee~~forego ~~that~~revenue ~~our~~opportunities, ~~contractual~~lose ~~protections~~market ~~will~~share beand ~~enforced~~damage our relationships. ~~Furthermore~~Conversely, ~~dealers~~if ~~and~~we ~~distributors~~overestimate consumer demand, we may ~~initiate~~purchase ~~claims~~more ~~against~~inventory usthan ~~related~~we are able to sell at any ~~failure~~given time, or ~~perceived~~at ~~failure~~all. toIf ~~operate~~we ~~our~~fail ~~business~~to inaccurately ~~accordance~~estimate ~~with~~demand for our ~~contracts~~products, ~~and~~we ~~the~~could ~~law.~~have Inexcess ~~addition,~~or ~~our~~obsolete ~~independent~~inventory, ~~dealers~~resulting ~~and~~in ~~distributors~~a ~~may~~decline ~~use~~in ~~our~~the ~~name~~value ~~and~~of our ~~brand~~inventory, inwhich ~~ways~~would weincrease doour ~~not~~costs ~~authorize,~~of revenues and ~~any~~reduce ~~such~~our ~~improper~~liquidity. ~~use~~Our ~~may~~failure ~~harm~~to ~~our~~accurately ~~reputation~~manage orinventory ~~expose~~relative us to ~~liability~~demand ~~for~~would ~~their~~adversely ~~actions~~affect our results of operations.

IfWe have relatively limited visibility regarding the consumers that ultimately purchase our products, and we ~~fail~~often rely on information from third-party dealers and distributors to ~~effectively~~help us manage our ~~existing~~business. ~~sales~~If ~~channels~~we ~~then~~are unable to obtain timely or accurate information, our ~~results~~ability ofto ~~operations~~quickly react to market changes and effectively manage our business may be harmed.

We sell our solutions through independent dealers and distributors. These dealers and distributors work with consumers to design, install, update and maintain their home automation installations. While we are able to track orders from dealers and distributors and have access to certain information about the configurations of the Control4 systems they install that we receive through our controllers, we also rely on these dealers and distributors to provide us with information about consumer behavior, product and system feedback, consumer demographics, buying patterns and information about our competitors. We use this channel sell-through data, along with other metrics, to assess consumer demand for our solutions, develop new products, adjust pricing and make other strategic business decisions. Our channel sell-through data is subject to limitations due to collection methods and the third-party nature of the data and thus may not be complete or accurate. In addition, from time to time we collect information directly from consumers through surveys that we conduct and other methods, but the consumers who chose to participate self-select and vary by geographic region and from period to period, which may impact the usefulness of the results. If we do not receive consumer information on a timely or accurate basis, or if we do not properly interpret this information, our ability to quickly react to market changes and effectively manage our business may be harmed.

We have entered into several strategic arrangements and intend to pursue additional strategic opportunities in the future. If the intended benefits from our strategic relationships are not realized, our results of operations may be harmed.

We are inworking ~~the~~to ~~process~~develop ~~of growing our~~ relationships with strategic partners in order to increase awareness of our solutions and to attempt to reach markets that we cannot currently address cost-effectively. If these relationships do not develop in the manner we intend, our future growth could be impacted. Any loss of a major partner or distribution channel or other channel disruption could harm our results of operations and make us more dependent on alternate channels, damage our reputation, increase pricing and promotional pressures from other partners and distribution channels, increase our marketing costs, or harm buying and inventory patterns, payment terms or other contractual terms.

If we do not maintain the compatibility of our solutions with third-party products and applications that our consumers use, demand for our solutions could decline.

Our solutions are designed to interoperate with a wide range of other third-party products, including products in the areas of audio, video, lighting, temperature, and security, and we benefit from our relationships with partners that allow our system to provide integrated and extensible control of ~~over~~approximately 1113,000 third‑party devices and services. If we do not support the continued integration of our solutions with third-party products and applications, including new and additional products, demand for our solutions could decline and we could lose sales. In addition, companies that provide certain point solutions have eliminated or restricted, and may in the future, eliminate or restrict, our ability to integrate with, control and otherwise be compatible with these products. As a result, we may not be successful in making our solutions compatible with these third-party products and applications or lose functionality in existing systems to the extent that they depend on the ability to integrate with third-party products, which could reduce demand for our solutions. In addition, if prospective consumers require customized features or functions that we do not offer, then the market for our solutions may be harmed.

If we are unable to adapt to technological change and implement technological and aesthetic enhancements to our products, this could impair our ability to remain competitive.

The market for home automation and control solutions is characterized by rapid technological change, frequent introductions of new products and evolving industry standards. However, product development often requires significant lead-time and upfront investment and our ability to attract new consumers and increase revenue from existing consumers will depend in significant part on our ability to accurately anticipate changes in industry standards and to continue to appropriately fund development efforts to enhance existing solutions or introduce new solutions in a timely basis to keep pace with technological developments. This is true of all our products but is particularly important with respect to our user interface and other direct consumer interface products. Similarly, if any of our competitors implement new technologies before we are able to implement them, those competitors may be able to provide more effective products than ours, possibly at lower prices, which

Table of Contents

~~could~~ If ~~impact~~we ~~sales~~are ~~and~~unable ~~decrease~~to ~~our~~adapt ~~market~~to ~~share.~~technological ~~Any~~change ~~delay~~and orimplement ~~failure~~technological inand ~~the~~aesthetic ~~introduction~~enhancements ofto ~~new~~our orproducts, ~~enhanced~~this ~~solutions~~ could ~~harm~~impair our ~~business,~~ability ~~results~~to ofremain ~~operations and financial condition~~competitive.

WeThe ~~currently~~market ~~rely~~for onhome ~~contract~~automation ~~manufacturers~~and tocontrol ~~manufacture~~solutions ~~our~~is characterized by rapid technological change, frequent introductions of new products and onevolving ~~component~~industry ~~vendors~~standards. However, product development often requires significant lead-time and upfront investment and our ability to ~~supply~~attract ~~parts~~new ~~used~~consumers and increase revenue from existing consumers will depend in significant part on our ~~products~~ability to accurately anticipate changes in industry standards and to continue to appropriately fund development or acquisition efforts to enhance existing solutions or introduce new solutions in a timely basis to keep pace with technological developments. ~~The~~This ~~majority~~is true of all our ~~components~~products ~~are~~but ~~supplied~~is byparticularly aimportant ~~single~~with ~~source~~respect to our user interface and other direct consumer interface products. ~~Any~~Similarly, ~~disruption~~if inany of our ~~supply~~competitors ~~chain~~implement new technologies before we are able to implement them, orthose ~~our~~competitors ~~failure~~may be able to ~~successfully~~provide ~~manage~~more ~~our~~effective ~~relationships~~products ~~with~~than ours, possibly at lower prices, which could impact sales and decrease our ~~contract~~market ~~manufacturers~~share. Any delay or ~~component~~failure ~~vendors~~in the introduction of new or enhanced solutions could harm our business, results of operations and financial condition.

Our reliance on contract manufacturers reduces our control over the assembly process, exposing us to risks, including reduced control over quality assurance, production costs and product supply. We rely on a limited number of contract manufacturers to manufacture most of our products and components, and in many cases one of these manufacturers is our only source for a particular product or product family. We also do business with a number of component vendors, and the parts they supply may not perform as expected. For the year ended December 31, 2017, three contract manufacturers, iLife, RCS and Sanmina, manufactured approximately 58% of our inventory purchases. Most of our contract manufacturers and component vendors are located outside of the United States, and all of them may be subject to political, economic, social and legal uncertainties that may harm our relationships with them. If we ~~fail~~are tounable manage our relationships with our contract manufacturers, component vendors or shipping partners effectively, or if our contract manufacturers, component vendors or shipping partners experience delays, disruptions, capacity constraints or quality control problems in their operations, our ability to ~~ship~~design products ~~may~~that bescale ~~impaired~~for ~~and~~use ~~our competitive position and reputation could be harmed. In addition, any adverse change~~ in ~~our~~larger ~~contract manufacturers’~~projects, ~~component~~this ~~vendors’ or shipping partners’ financial or business condition~~ could ~~disrupt~~impair our ability to ~~supply~~remain ~~quality products to our dealers and distributors~~competitive. If we are required to change contract manufacturers, component vendors, or shipping partners we may lose revenue, incur increased costs or damage our relationships, or we might be unable to find a new contract manufacturer or component vendor on acceptable terms, or at all. In addition, qualifying a new contract manufacturer or component vendor could be an expensive and lengthy process. If we experience increased demand that our contract manufacturers or component vendors are unable to fulfill, or if they are unable to provide us with adequate supplies of high-quality products for any reason, we could experience a delay in our order fulfillment, and our business, results of operations and financial condition would be harmed.

As the market for automation, control, and networking matures, the complexity of projects pursued by our consumers is increasing. If we are not able to design products that work in such larger and more complex projects, our reputation may suffer, we may lose business opportunities, and projects may fail.

We currently rely on contract manufacturers to manufacture our products and on component vendors to supply parts used in our products. Any disruption in our supply chain, or our failure to successfully manage our relationships with our contract manufacturers or component vendors could harm our business.

Our reliance on contract manufacturers reduces our control over the assembly process, exposing us to risks, including reduced control over quality assurance, production costs and product supply. We rely on a limited number of contract manufacturers to manufacture most of our products and components, and in many cases one of these manufacturers is our only source for a particular product or product family. We also do business with a number of component vendors, and the parts they supply may not perform as expected. Most of our contract manufacturers and component vendors are located outside of the United States, and all of them may be subject to political, economic, social, regulatory and legal uncertainties that may harm our relationships with them. If we fail to manage our relationships with our contract manufacturers, component vendors or shipping partners effectively, or if our contract manufacturers, component vendors or shipping partners experience delays, disruptions, capacity constraints or quality control problems in their operations, our ability to ship products may be impaired and our competitive position and reputation could be harmed. In addition, any adverse change in our contract manufacturers’, component vendors’ or shipping partners’ financial or business condition could disrupt our ability to supply quality products to our dealers and distributors. If we are required to change contract manufacturers, component vendors, or shipping partners we may lose revenue, incur increased costs or damage our relationships, or we might be unable to find a new contract manufacturer or component vendor on acceptable terms, or at all. In addition, qualifying a new contract manufacturer or component vendor could be an expensive and lengthy process. If we experience increased demand that our contract manufacturers or component vendors are unable to fulfill, or if they are unable to provide us with adequate supplies of high-quality products for any reason, we could experience a delay in our order fulfillment, and our business, results of operations and financial condition would be harmed.

Changes in import/export regulatory regimes and duties could negatively impact our business.

~~The~~In ~~current~~2018, ~~presidential~~the ~~administration~~United inStates implemented a number of new tariffs on the importation of materials, which prompted some affected nations to respond with new tariffs on U.S. exports. Of particular note, the United States recently imposed and proposed tariffs on a number of goods from China. In turn, China has ~~made~~responded ~~comments~~by ~~suggesting~~imposing reciprocal tariffs on U.S. exports to China, and both countries have indicated that itthere iscould ~~not~~be ~~supportive~~continued escalation of ~~certain~~protectionist ~~existing~~policies. ~~international~~We ~~trade~~continue ~~agreements,~~to evaluate the impact of these tariffs and atpolicies ~~this~~on ~~time,~~our itsupply ~~remains~~chain ~~unclear~~and ~~what~~to ~~this~~consider ~~administration~~appropriate ~~may~~responses orin ~~may~~our ~~not~~sourcing doof ~~with~~products ~~respect~~and components while exploring certain government affairs initiatives to help shape future policies. So far, these recently enacted tariffs have not had a material impact on our overall production costs; however, the international trade ~~agreements.~~landscape ~~Additional~~is orchanging, and increased import taxes or duties ~~in the United States~~ could negatively impact our cost structures in future periods and make it prudent for us to move certain manufacturing to alternative geographies. If the United States, or other countries in which we do significant business, were to withdraw from or materially modify certain international trade agreements, further change tariff or tax provisions related to the global manufacturing and sales of our products, or otherwise alter regulations impacting our existing business, ~~our~~or ~~financial~~if ~~condition~~these ~~and~~changes ~~results~~negatively ofaffect ~~operations~~us ~~could~~disproportionately beas ~~adversely~~compared ~~affected.~~ to our competitors, our

Growth of our business may depend on market awareness and a strong brand, and any failure to develop, broaden, protect and enhance market awareness of our products could hurt our ability to retain or attract consumers.

Because of the competitive nature of the mainstream home automation market, we believe that building and maintaining market awareness, brand recognition and goodwill may be material to our success. This will depend largely on our ability to continue to provide high-quality solutions, and we may not be able to do so effectively. We may choose to engage in a broader marketing campaigns to further promote our brand, but this effort may not be successful. Our efforts in developing our brand may be affected by the marketing efforts of our competitors, negative publicity and social media commentary, and our reliance on our independent dealers, distributors and strategic partners to install our products and promote our brand effectively. If we are unable to cost-effectively maintain and increase positive awareness of our brand, our business, results of operations and financial condition could be harmed.

We operate in the emerging and evolving home automation market, which may develop more slowly or differently than we expect. If the mainstream home automation market does not grow as we expect, or if we cannot expand our solutions to meet the demands of this market, our revenue may decline, fail to grow or fail to grow at an accelerated rate, and we may incur additional operating losses.

Table of Contents

~~solutions.~~financial ~~Unified~~condition ~~home automation solutions such as ours have traditionally been luxury purchases for the high end of the residential market,~~ and ~~while~~results ~~our solutions target the high end~~ of ~~the~~operations ~~market,~~could webe ~~also~~adversely have solutions that target middle- and entry-level home owners, including our EA-1 that is designed to control smaller, single room projects with an entertainment component and a new CA-1 controller for smaller projects that only include lighting, comfort, and/or security, which we released in February 2018affected. In ~~Our ability to expand the sales of our solutions to a broader consumer base depends on several factors~~addition, ~~including~~if ~~market~~any ~~awareness~~ of our ~~solutions,~~products ~~the~~are ~~timely~~found ~~completion, introduction and market acceptance of our solutions, the ability~~ to ~~attract,~~have ~~retain~~been ~~and~~misclassified ~~effectively~~under ~~train~~various ~~sales~~tariff ~~and marketing personnel~~codes, the effectiveness of our marketing programs, the ability to develop effective relationships with independent dealers and distributors, the cost and functionality of our solutions and the success of our competitors. If we ~~are~~could ~~unsuccessful~~be insubject ~~developing and marketing our home automation solutions~~ to ~~mainstream~~higher ~~consumers,~~duties and/or if these consumers do not perceive or value the benefits of our solutions, the market for our solutions might not continue to develop or might develop more slowly than we expect, either of which would harm our revenue and growth prospectsfines.

~~Our~~Growth ~~consumers~~of ~~may~~our ~~experience~~business ~~service~~may ~~failures~~depend oron ~~interruptions~~market ~~due~~awareness toand ~~defects~~a instrong ~~the software~~brand, ~~infrastructure,~~and ~~third-party~~any ~~components~~failure orto ~~processes~~develop, ~~that comprise our solutions~~broaden, orprotect ~~due~~and toenhance ~~errors~~market inawareness ~~product~~of ~~installation~~our orproducts ~~servicing~~could byhurt our ~~independent~~ability ~~dealers,~~to ~~any~~retain ofor ~~which~~attract ~~could harm our business~~consumers.

~~Our~~Because ~~solutions~~of ~~may~~the ~~contain~~competitive ~~undetected~~nature ~~defects~~of in the ~~software~~home automation market, ~~infrastructure~~we believe that building and maintaining market awareness, ~~third-party~~brand ~~components~~recognition orand ~~processes~~goodwill may be material to our success. IfThis ~~these~~will ~~defects~~depend ~~lead~~largely on our ability to ~~service~~continue ~~failures~~to provide high-quality solutions, and we ~~could~~may not be ~~subject~~able to ~~liability~~do ~~for~~so ~~such~~effectively. ~~failures~~We ~~and~~may wechoose ~~could~~to ~~experience~~engage ~~harm~~in a broader marketing campaigns to further promote our ~~branded~~brand, ~~reputation.~~but ~~Such~~this ~~defects~~effort ~~could~~may ~~also~~not ~~result~~be successful. Our efforts in adeveloping ~~loss~~our brand may be affected by the marketing efforts of our competitors, ornegative ~~delay~~publicity inand social media commentary, ~~market~~and ~~acceptance~~our ofreliance on our ~~solutions~~independent dealers, ~~which~~distributors ~~could~~and ~~harm~~strategic partners to install our products and promote our brand effectively. If we are unable to cost-effectively maintain and increase positive awareness of our brand, our business, results of operations and financial condition could be harmed.

We operate in the emerging and evolving home automation market, which may develop more slowly or differently than we expect. If the home automation market does not grow as we expect, or if we cannot expand our solutions to meet the demands of this market, our revenue may decline, fail to grow or fail to grow at an accelerated rate, and we may incur operating losses.

The market for home automation and control solutions is evolving, and it is uncertain whether our solutions will achieve and sustain high levels of demand and market acceptance. Some consumers may be reluctant or unwilling to use our solutions for a number of reasons, including satisfaction with other solutions, concerns about cost, and lack of awareness of our solutions. Unified home automation solutions such as ours have traditionally been luxury purchases for the high end of the residential market, and while our solutions target the high end of the market, we also have solutions that target middle- and entry-level home owners, including our EA-1 that is designed to control smaller, single room projects with an entertainment component and the CA-1 controller for smaller projects that only include lighting, comfort, and/or security. Our ability to expand the sales of our solutions to a broader consumer base depends on several factors, including market awareness of our solutions, the timely completion, introduction and market acceptance of our solutions, the ability to attract, retain and effectively train sales and marketing personnel, the effectiveness of our marketing programs, the ability to develop effective relationships with independent dealers and distributors and other strategic partners, the cost and functionality of our solutions and the success of our competitors. If we are unsuccessful in developing and marketing our home automation solutions to consumers, or if these consumers do not perceive or value the benefits of our solutions, the market for our solutions might not continue to develop or might develop more slowly than we expect, either of which would harm our revenue and growth prospects.

Our consumers may experience service failures or interruptions due to defects in the software, products, infrastructure, third-party components or processes that comprise our solutions, or due to errors in product installation or servicing by our independent dealers, any of which could harm our business.

Our solutions may contain undetected defects in the software, products, infrastructure, third-party components or processes. If these defects lead to service failures, we could be subject to liability for such failures and we could experience harm to our branded reputation. Such defects could also result in a loss of, or delay in, market acceptance of our solutions, which could harm our business, results of operations and financial condition.

In addition to failures due to product defects, because our solutions are installed by independent dealers, if they do not install or maintain our solutions correctly or if the underlying network or infrastructure in a home or business is not sufficiently robust, our solutions may not function properly. If the improper installation or maintenance of our solutions leads to service failures of a product or solution, we could experience harm to our branded reputation, claims by our consumers, dealers, distributors, strategic partners or developers and we may incur increased expense during the period required to address the cause of the problem, which could harm our business, results of operations and financial condition.

Any defect in, or disruption to, our solutions could cause consumers to remove their products, not to purchase additional products from us, prevent other potential consumers from purchasing our solutions, or harm our reputation. The nature of the solutions we provide, including our interface with home security solutions, may expose us to greater risks of liability for system failure or even installation errors by our independent dealers than may be inherent in other businesses. Substantially all of our dealer agreements contain provisions limiting our liability to dealers and our consumers in an attempt to reduce this risk. However, in the event of litigation with respect to these matters, we cannot be sure that these limitations will be enforced, and defending a lawsuit, regardless of its merit, could be costly, divert management’s attention, affect our ability to obtain or maintain liability insurance on acceptable terms and could harm our business. In addition, there can be no assurance that we are adequately insured for these risks. Certain of our insurance policies and the laws of some jurisdictions may limit or prohibit insurance coverage for punitive or certain other types of damages or liability arising from gross negligence. Although we currently maintain some warranty reserves, we cannot be sure that these warranty reserves will be sufficient to cover future liabilities. Furthermore, we may be required to indemnify our dealers, distributors and other partners against certain liabilities they may incur as a result of defects of our products.

Our networking solutions business may be harmed if users perceive our solution as the cause of a slow or unreliable network connection, or in the event of a high-profile network failure, even though certain technical problems experienced by users may not be caused by our products.

Our networking solutions have been deployed in many different locations and user environments and are capable of providing connectivity to many different types of Wi-Fi-enabled devices operating a variety of applications. The ability of our products to operate effectively can be negatively impacted by many different elements unrelated to our products. For example, a user’s experience may suffer from an incorrect setting in a Wi-Fi device. Although certain technical problems experienced by users may not be caused by our products, users often may perceive the underlying cause to be a result of poor performance of the wireless network. This perception, even if incorrect, could harm our business and reputation. Similarly, a high-profile network failure may be caused by improper operation of the network or failure of a network component that we did not supply, but users and other service providers may perceive that our products were implicated, which, even if incorrect, could harm our business, operating results and financial condition.

Table of Contents

reduce this risk. However, in the event of litigation with respect to these matters, we cannot be sure that these limitations will be enforced, and defending a lawsuit, regardless of its merit, could be costly, divert management’s attention, affect our ability to obtain or maintain liability insurance on acceptable terms and could harm our business. In addition, there can be no assurance that we are adequately insured for these risks. Certain of our insurance policies and the laws of some jurisdictions may limit or prohibit insurance coverage for punitive or certain other types of damages or liability arising from gross negligence. Although we currently maintain some warranty reserves, we cannot be sure that these warranty reserves will be sufficient to cover future liabilities. Furthermore, we may be required to indemnify our dealers, distributors and other partners against certain liabilities they may incur as a result of defects of our products or third-party intellectual property claims related to our products or other materials we provide to them.

Failure to maintain the security of our information and technology networks, including information relating to our dealers, distributors, partners, consumers and employees, could adversely affect our business. Furthermore, without limiting the preceding sentence, if security breaches in connection with the delivery of our products and services allow unauthorized third parties to obtain control of or otherwise access consumers’ networks or appliances, our reputation, business, results of operations and financial condition could be harmed.

The legal, regulatory and contractual environment surrounding information security, privacy and fraud is constantly evolving and companies that collect and retain information are under increasing attack by cyber- criminals around the world. We are dependent on information technology networks and systems, including the Internet, to process, transmit and store electronic information and, in the normal course of our business, we collect and retain certain information, including financial information and personally identifiable information, from and pertaining to our dealers, distributors, partners, consumers and employees. The protection of dealer, distributor, partner, consumer and employee data is important to us, and we devote significant resources to addressing security vulnerabilities in our products and information technology systems, including encrypting some data repositories and engaging security experts to conduct penetration testing to help us uncover vulnerabilities in our systems. However, the policies and security measures that we put in place could prove to be inadequate and cannot guarantee security, and our information technology infrastructure may be vulnerable to criminal cyber-attacks or data security incidents due to employee or dealer negligence, error, malfeasance, or other vulnerabilities. Cyber security attacks are increasingly sophisticated, change frequently, and often go undetected until after an attack has been launched. We may fail to identify these new and complex methods of attack, or fail to invest sufficient resources in security measures. We have and will continue to experience cyber-attacks, and we cannot be certain that advances in cyber-capabilities or other developments will not permit compromise or breach the technology protecting the networks that access our products and services and repositories where we store this information.

We have acquired a number of companies over the years and may continue to do so in the future. While we make significant efforts to address any information technology security issues with respect to our acquisitions, we may still inherit such risks when we integrate the acquired products and systems.

In addition, consumers can use our tools tofor authorized, remote access to their automation systems ~~remotely~~, and certain of our employees and independent dealers can ~~monitor~~be provided authorized access to monitor and update certain of our products and services remotely. Security breaches by third parties or by, or originating from, one or more of our dealers, distributors or employees, that allow unauthorized ~~third~~access ~~parties~~or ~~to obtain~~ control of our consumers’ appliances through our products or to obtain, collect, use or disclose any personal data of consumers, could harm our reputation, business, results of operations and financial condition. Furthermore, although we do not recommend or approve of port forwarding for remote access to our solutions, ~~certain of our dealers have in the past and may in the future enable port forwarding, which could create security vulnerabilities in their customers’ home networks.~~

It is difficult to determine what harm may directly result from any specific interruption or security breach. Any failure or perceived failure to maintain performance, reliability, security and availability of systems or the actual or potential theft, loss, fraudulent use or misuse of our products or associated confidential information, including personally identifiable data of a dealer, distributor, partner, consumer, and employee, could result in:20

Table of Contents

certain of our dealers have in the past and may in the future enable port forwarding, which could create security vulnerabilities in their customers’ home networks.

It is difficult to determine what harm may result from any specific interruption or security breach. Any failure or perceived failure to maintain performance, reliability, security and availability of systems or the actual or potential theft, loss, fraudulent use or misuse of our products or associated confidential information, including personally identifiable data of a dealer, distributor, partner, consumer, and employee, could result in:

harm to our reputation or brand, which could lead some consumers to stop using certain of our products or services, reduce or delay future purchases of our products or services, use competing products or services, or materially and adversely affect the overall market perception of the security and reliability of our services and home automation products generally;

individual and/or class action lawsuits, which could result in financial judgments against us and that would cause us to incur legal fees and costs;

legal or regulatory enforcement action, which could result in fines and/or penalties and which would cause us to incur legal fees and costs; and/or

additional costs associated with responding to the interruption or security breach, such as investigative and remediation costs, the costs of providing individuals and/or data owners with notice of the breach, legal fees, the costs of any additional fraud detection activities, or the costs of prolonged system disruptions or shutdowns.

Any of these actions could materially adversely impact our business and results of operations.

Table of Contents

Because we store, process, and use data, some of which contains personal information, we are subject to complex and evolving federal, state, and foreign laws and regulations regarding privacy, data protection, and other matters. Many of these laws and regulations are subject to change and uncertain interpretation, and could result in investigations, claims, changes to our business practices, increased cost of operations, and declines in user growth, retention, or engagement, any of which could seriously harm our business.

We are subject to a variety of laws and regulations that involve matters central to our business, including ~~user~~ privacy, rights of publicity, data protection, content, intellectual property, distribution, electronic contracts and other communications, competition, protection of minors, consumer protection, taxation, and online-payment services. Because we store, process, and use data, some of which contains personal information, we are subject to complex and evolving federal, state, and foreign laws and regulations regarding privacy, data protection, and other matters. ~~These laws can be particularly restrictive in countries outside the United States.~~ Both in the United States and abroad, these laws and regulations constantly evolve and ~~remain~~are subject to significant change. In addition, in the United States each state has a separate statutory approach to privacy regulation, and recently states such as California have been very active in pursuing new regulations that are typically more restrictive than other jurisdictions. The application and interpretation of these laws and regulations are often uncertain, particularly in the new and rapidly evolving industry in which we operate. Continually implementing up-to-date data security tools and procedures and maintaining privacy standards that comply with ever-changing privacy regulations in multiple jurisdictions ~~(including~~is ~~but~~challenging. ~~not~~For ~~limited~~example, to the General Data Protection Regulation (GDPR) in the European Union, which ~~will~~went go into effect on May 25, 2018), has not yet been fully interpreted by legal and regulatory bodies, and while we have invested significant resources in compliance efforts, there is ~~challenging~~no guarantee that our efforts to date will be found to be adequate.

In addition, on July 12, 2016 the European Commission formally adopted the new EU – U.S. Privacy Shield, which provides a safe harbor for the transfer of personal information, by U.S. companies doing business in Europe from the European Economic Area to the United States provided that such U.S. companies self-certify under this framework. ~~Control4~~We ~~has~~have submitted ~~its~~our self-certification application pursuant to the Privacy Shield, and as part of this self-certification, we have committed to abide by the Privacy Shield principles with respect to any personal information transferred. However, the Privacy Shield is subject to an annual review by the European Commission, and on July 5, 2018 members of the European Parliament passed a nonbinding resolution calling for the Privacy Shield to be suspended at the European Commission’s next review in September. Thus far the Privacy Shield has not been suspended, but if it is suspended in the future, we will need to find other ways to lawfully transfer personal data that is required for our business and operations from the EU to the U.S., and there is no guarantee that we will be able to adequately implement such alternative compliance methodologies, such as implementing binding corporate rules, before the suspension goes into effect.

We publicly post our privacy policies and practices concerning our processing, use and disclosure of personal information. Our privacy policy and other statements we publish provide promises and assurances about privacy and security that could subject us to potential regulatory action or other liabilities if such statements are found to be deceptive or misrepresentative of our practices or if we fail to take adequate measures to ensure that we adhere to applicable regulations, or if our third-party data processors fail to adequately protect personal information that they process on our behalf.21

Table of Contents

We publicly post our privacy policies and practices concerning our processing, use and disclosure of personal information. Our privacy policy and other statements we publish provide promises and assurances about privacy and security that could subject us to potential regulatory action or other liabilities if: (a) such statements are found to be deceptive or misrepresentative of our practices, (b) we fail to take adequate measures to ensure that we adhere to applicable regulations, or (c) our third-party data processors fail to adequately protect personal information that they process on our behalf.

We encounter seasonality in sales, which could harm the amount, timing and predictability of our revenue and cause our stock price to fluctuate.

We have little recurring revenue or backlog, and our revenue is generated from orders of our solutions from new and existing consumers, each of which may cause our quarterly results to fluctuate. In addition, we may experience seasonality in the sales of our solutions. Historically, our revenue is generally highest in the fourth quarter and lowest in the first quarter. Seasonal variations in our sales may lead to significant fluctuations in our cash flows and results of operations on a quarterly basis and this may cause our stock price to fluctuate.

We may not generate significant revenue as a result of our current research and development efforts.

We have made and expect to continue to make significant investments in research and development and related product opportunities. For the year ended December 31, ~~2017~~2018, we spent $4043.6 million on research and development expenses. High levels of expenditures for research and development could harm our results of operations, especially if not offset by corresponding future revenue increases. We believe that we must continue to dedicate a significant amount of resources to our research and development efforts to maintain our competitive position. However, it is difficult to estimate when, if ever, we will generate significant revenue as a result of these investments.

Our strategy includes pursuing acquisitions and our potential inability to identify good opportunities and to successfully integrate newly-acquired technologies, assets, businesses, or personnel may harm our financial results.

We believe part of our growth will be driven by acquisitions of other companies or their technologies, assets and businesses, but we may not be able to acquire the targeted technologies, assets and businesses we identify as desirable for a price we consider to be reasonable or at all. Recent acquisitions include Pakedge in January 2016, Triad in February 2017, ~~and~~ihiji ~~substantially~~in ~~all~~December ~~the~~2017, ~~assets~~and ofNEEO ~~ihiji~~ in ~~December~~January ~~2017~~2019. These acquisitions and any future acquisitions we evaluate and complete will give rise to risks, including:

Incurring higher than anticipated capital expenditures and operating expenses;

Table of Contents

Failing to assimilate the operations and personnel, or failing to retain the key personnel of the acquired company or business;

Failing to integrate the acquired technologies, or incurring significant expense to integrate acquired technologies into our solutions;

Disrupting our ongoing business;

Dissipating or diverting our management resources;

Failing to maintain uniform standards, controls and policies;

Incurring significant accounting charges;

Impairing relationships with employees, dealers, distributors, partners or consumers;

Finding that the acquired technology, assets or business does not further our business strategy, that we overpaid for the technology, assets or business, or that we may be required to write off acquired assets or investments partially or entirely;

Failing to realize the expected synergies of the transaction;

· Being exposed to unforeseen liabilities and contingencies that were not identified during diligence conducted prior to acquiring the company, including but not limited to the risk that the products or services of the acquired company violate third-party intellectual property rights or regulatory standards or contain other vulnerabilities; and 22

Table of Contents

Being exposed to unforeseen liabilities and contingencies that were not identified and mitigated during diligence conducted prior to acquiring the company, including but not limited to the risk that the products or services of the acquired company violate third-party intellectual property rights or regulatory standards or contain other vulnerabilities; and

Being unable to generate sufficient revenue from acquisitions to offset the associated acquisition costs.

Fully integrating acquired technology, asset, business, or personnel into our operations may take a significant amount of time and resources. We may not be successful in overcoming these risks or any other problems encountered with such acquisitions. To the extent we do not successfully avoid or overcome the risks or problems related to any such acquisitions, our results of operations and financial condition could be harmed. Acquisitions also could impact our financial position and capital needs, or could cause fluctuations in our quarterly and annual results of operations.

Acquisitions could include significant goodwill and intangible assets. The amortization of such intangible assets would reduce our profitability and there may be future impairment charges that would reduce our stated earnings. We may incur significant costs in our efforts to engage in strategic transactions and these expenditures may not result in successful acquisitions.

Future acquisitions of technologies, assets or businesses, that are paid for partially or entirely through the issuance of stock or stock rights, could dilute the ownership of our existing stockholders.

We expect that the consideration we might pay for any future acquisitions of technologies, assets or businesses could include stock, rights to purchase stock, cash or some combination of the foregoing. If we issue stock or rights to purchase stock in connection with such future acquisitions, net income (loss) per share and then-existing holders of our common stock may experience dilution.

We may pursue business opportunities that diverge from our current business model, which may cause our business to suffer.

We may pursue business opportunities that diverge from our current business model, including expanding our solutions into lines of business with which we have no experience, investing in new and unproven technologies, and expanding our existing sales channels or adding new sales channels, including through acquisitions such as our recent acquisition of Triad and its speaker lines. We can offer no assurance that any such new business opportunities will prove to be successful. Among other negative effects, our pursuit of such business opportunities could reduce operating margins and require more working capital, or materially and adversely affect our business, financial condition, results of operations and cash flows.

Table of Contents

Our gross margins can vary significantly depending on multiple factors, which can result in fluctuations in our results of operations.

Our gross margins are likely to vary due to consumer demand, product mix, new product introductions, unit volumes, commodity and supply chain costs, regulatory changes including changes to import/export duties, product delivery costs, geographic sales mix, excess and obsolete inventory and the complexity and functionality of new product innovations. In particular, if we are not able to introduce new solutions in a timely manner at the cost we expect, or if consumer demand for our solutions is less than we anticipate, or if there are product pricing, marketing and other initiatives by our competitors to which we need to react that lower our margins, then our overall gross margin will be less than we project. The impact of these factors on gross margins can create unanticipated fluctuations in our results of operations, which may cause volatility in our stock price.

If we are unable to substantially utilize our net operating loss or tax credit carryforwards, our financial results will be harmed.

As of December 31, ~~2017~~2018, our net operating loss (“NOL”) carryforward amounts for U.S. federal income and state tax purposes were $6657.71 million and $6761.81 million, respectively. In addition to the NOL carryforwards, as of December 31, ~~2017~~2018, we had U.S. federal and state tax credit carryforwards of $6.64 million and $2.8 million, respectively. While we have generated profits at times in the past, there is no assurance that we will be able to generate sufficient taxable income to utilize our NOLs or tax credits before they expire. ~~Our NOL carryforwards were fully reserved for as of December 31, 2017.~~

~~If we are unable to manage our growth and diverse and complex operations, our reputation in the market and our ability to generate revenue from new or existing consumers may be harmed.~~23

Table of Contents

If we are unable to manage our business growth and diverse and complex operations, our reputation in the market and our ability to generate revenue from new or existing consumers may be harmed.

Because our operations are geographically diverse and complex, our personnel resources and infrastructure could become strained and our reputation in the market and our ability to successfully implement our business plan may be harmed. The growth in the size, complexity and diverse nature of our business and the expansion of our product lines and consumer base, including through acquisitions, have placed increased demands on our management and operations, and further growth, if any, may place additional strains on our resources in the future. Our ability to effectively compete and to manage our plan to continue to expand our headcount and operations may depend on, among other things:

Maintaining institutional knowledge by retaining and expanding the core competencies critical to our operations in our senior management and key personnel;

Increasing the productivity of our existing employees and attracting new talent;

Maintaining existing productive relationships and developing new productive relationships with independent contract manufacturers, dealers and distributors;

Improving our operational, financial and management controls; and

Improving our information reporting systems and procedures.

If we do not manage the size, complexity and diverse nature of our business effectively, we could experience delayed product releases and longer response times by our dealers in assisting our consumers in implementing our solutions, and could lack adequate resources to support our consumers on an ongoing basis, any of which could harm our reputation in the market, our ability to successfully implement our business plan and our ability to generate revenue from new or existing consumers.

If we fail to retain our key employees and attract talented new personnel as needed, our business would be harmed and we might not be able to implement our business plan successfully.

Given the complex nature of the technology on which our business is based and the speed with which such technology advances, our future success is dependent, in large part, upon our ability to attract and retain highly qualified executive, managerial, engineering, and sales and marketing personnel. Competition for talented personnel is intense, and we cannot be certain that we can retain our executive, managerial, engineering, and sales and marketing personnel, or that we can attract, assimilate or retain such personnel in the future. Our inability to attract and retain such personnel could harm our business, results of operations and financial condition.

Table of Contents

Downturns in general economic and market conditions, including but not limited to downturns in housing markets and reductions in consumer spending, may reduce demand for our solutions, which could harm our revenue, results of operations, financial condition and cash flows.

Our revenue, results of operations and cash flows depend on the overall demand for our solutions and the willingness of our dealer-channel to invest in marketing our solutions, both of which can be significantly reduced in economic environments characterized by market and interest rate volatility, decreased consumer confidence, high unemployment, declines in residential remodeling and housing starts, fluctuating exchange rates, and diminished growth expectations in the U.S. economy and abroad. During periods of weak or unstable economic and market conditions, providers of products and services that represent discretionary purchases, such as our home automation products, are disproportionately affected. In addition, during these periods, the number of independent dealers and distributors may decline as the prospects for home building and home renovation projects diminish, which may have a corresponding impact on our growth prospects. Furthermore, during challenging economic times consumers may face issues in gaining timely access to sufficient credit, which could impair their ability to make timely payments. There is also an increased risk during these periods that an increased percentage of our dealers will file for bankruptcy protection, which may harm our reputation, revenue, profitability and results of operations. We cannot predict the timing, strength or duration of any economic slowdown, instability or recovery, generally or within any particular geography or industry. Any downturns in the general economic conditions of the geographies and industries in which we operate, or any other factors negatively impacting housing markets or consumer spending, could materially and adversely impact our revenue, results of operations, financial condition and cash flows.

Table of Contents

If our estimates or judgments relating to our critical accounting policies are based on assumptions that change or prove to be incorrect, our results of operations could fall below expectations of securities analysts and investors, resulting in a decline in our stock price.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the results of which form the basis for making judgments about the carrying values of assets, liabilities and equity, and the amount of revenue and expenses that are not readily apparent from other sources. Significant assumptions and estimates used in preparing our consolidated financial statements include, or may in the future include, those related to revenue recognition, allowance for doubtful accounts, inventories, product warranties, income taxes and stock-based compensation expense. Our results of operations may be harmed if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our results of operations to fall below the expectations of securities analysts and investors, resulting in a decline in our stock price.

Changes in existing financial accounting standards or practices, or taxation rules or practices, may harm our results of operations.

Changes in existing accounting or taxation rules or practices, new accounting pronouncements or taxation rules, or varying interpretations of current accounting pronouncements or taxation practice could harm our results of operations or the manner in which we conduct our business. For example, on December 22, 2017, “H.R.1”, f known as the “Tax Cuts and JOBS Act”, (the “Tax Act”) was signed into U.S. law, which among other changes reduces the corporate income tax rate to 21%, creates a territorial tax system (with a one-time mandatory tax on previously deferred foreign earnings), and requires companies to pay minimum taxes on foreign earnings and subjects certain payments from U.S. corporations to foreign related parties to additional taxes. While ~~this~~the ~~act~~Tax Act will result in a lower domestic income tax rate once we fully utilize our net operating ~~loss~~losses and other accumulated tax credits, we ~~will~~were be subject to the one-time mandatory tax on previously deferred foreign earnings, which resulted in increased utilization of our net operating loss carryover to eliminate any cash federal income taxes. We ~~will~~In ~~continue~~addition, the Tax Act is subject to ~~monitor~~further interpretation from the U.S. federal and state governments and regulatory organizations, such as the Treasury Department and/or Internal Revenue Service (the “IRS”) and this could change our U.S. tax liabilities based on updated guidance and interpretations. The guidance and notices may have a material impact on us. In addition, the IRS has already issued and stated that it intends to continue to issue notices of ~~this~~intent to amend certain regulations and ~~further~~also ~~changes~~institute new regulations with respect to ~~applicable~~the Tax Act. These proposed regulations either clarify certain tax positions or provide new regulations. We have not taken these notices into account as they are yet to be become final regulations and may or may not have a material impact on us. Also, because there may be additional state income tax implications, we will continue to monitor changes in state and local tax laws to ~~our~~determine ~~overall~~if ~~business~~state ~~strategy~~and local taxing authorities intend to conform or deviate from changes to U. S. federal tax legislation as a result of the Tax Act.

We also earn a portion of our operating income from outside the United States. The Tax Act will significantly impact how U.S. multinational corporations are taxed on foreign earnings. Numerous countries are evaluating their existing tax laws in response to the changes in U.S. tax laws. Although we cannot predict whether or in what form any legislation based on such proposals may be adopted by the countries in which we do business, future tax reform based on such proposals may increase the amount of taxes we pay and adversely affect our operating results and cash flows. We will continue to monitor the impact of this and further changes to applicable tax laws to our overall business strategy.

Mergers or other strategic transactions involving our competitors could weaken our competitive position, which could harm our results of operations.

Our industry is highly fragmented, and we believe it is likely that some of our existing competitors will consolidate or be acquired. In addition, some of our competitors may enter into new alliances with each other or may establish or strengthen cooperative relationships with systems integrators, third-party consulting firms or other parties. For example, ~~Google~~Amazon ~~Inc.~~acquired Ring, a manufacturer of video doorbells; Google acquired Nest Labs, a manufacturer of thermostats and smoke detectors; Nest Labs acquired Dropcam, a home-monitoring camera company; and Samsung Electronics acquired SmartThings and Harman

Table of Contents

camera company; and Samsung Electronics Co., Ltd. acquired SmartThings and Harman International Industries. Transactions such as these, as well as any additional consolidations, acquisitions, alliances or cooperative relationships, or new product introductions by companies in our industry, could lead to pricing pressure, reduce our market share or result in a competitor with greater financial, technical, marketing, service and other resources than ours, all of which could harm our business, results of operations and financial condition.

We are an “emerging growth company,” and any decision on our part to comply with certain reduced disclosure requirements applicable to emerging growth companies could make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding an annual non-binding advisory vote on executive compensation and nonbinding stockholder approval of any golden parachute payments not previously approved. If we choose not to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, as we have in the past, our auditors will not be required to opine on the effectiveness of our internal control over financial reporting. As a result, investors may be less comfortable with the effectiveness of our internal controls and the risk that material weaknesses or other deficiencies in our internal controls go undetected may increase. If we choose to provide reduced disclosures in our periodic reports and proxy statements while we are an emerging growth company, as we have in the past, investors will have access to less information and analysis about our executive compensation, which may make it difficult for investors to evaluate our executive compensation practices. We cannot predict if investors find our common stock less attractive because we may rely on these exemptions and provide reduced disclosure. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be harmed. We expect that our “emerging growth company” status will expire on December 31, 2018, the last day of the fiscal year ending after the fifth anniversary of our initial public offering.

In addition, Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the “Securities Act”), for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. However, we have chosen to “opt out” of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

Failure to achieve and maintain effective internal control over financial reporting could result in our failure to accurately report our financial results. Any inability to report and file our financial results accurately and timely could harm our business and adversely impact investor confidence in our company and, as a result, the value of our common stock.

Effective internal controls are necessary for us to produce reliable financial reports and are important to helping prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and results of operations could be harmed, investors could lose confidence in our reported financial information, and the trading price of our stock could drop significantly. We are required to perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, or Section 404. This assessment includes disclosure of any material weaknesses identified by our management in our internal control over financial reporting. However, our auditors will not be required to formally opine on the effectiveness of our internal control over financial reporting pursuant to Section 404 until we are no longer an “emerging growth company” as defined in the JOBS Act, and we continue to take advantage of the exemptions available to us through the JOBS Act. We expect that our auditors will be required to formally opine on the effectiveness of our internal controls no later than our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

Our compliance with Section 404 may require us to continue to incur substantial expense and expend significant management efforts. We may not be able to remediate any future material weaknesses, or to complete our evaluation, testing and any required remediation in a timely fashion. During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal controls are effective. If we are unable to assert that our internal control over financial reporting is effective, or if our auditors are unable to express an

Table of Contents

~~opinion~~International onIndustries. ~~the~~Transactions ~~effectiveness~~such ofas ~~our~~these, ~~internal~~as ~~controls~~well ~~when~~as ~~they~~any ~~are~~additional ~~required~~consolidations, toacquisitions, ~~issue~~alliances ~~such~~or ~~opinion~~cooperative relationships, ~~investors~~or ~~could~~new ~~lose~~product ~~confidence~~introductions by companies in ~~the~~our ~~accuracy~~industry, ~~and~~could ~~completeness~~lead ofto pricing pressure, reduce our market share or result in a competitor with greater financial, ~~reports~~technical, marketing, service and other resources than ours, all of which could harm our ~~stock~~business, ~~price~~results of operations and financial condition.

In connection with this Annual Report on Form 10-K for the fiscal year ended December 31, 2018, our auditors are now required to formally opine on the effectiveness of our internal controls, and we expect that compliance with Section 404 will continue to require us to incur substantial expense and expend significant management efforts. We may not be able to remediate any future material weaknesses, or to complete our evaluation, testing and any required remediation in a timely fashion. During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal controls are effective. If we are unable to assert that our internal control over financial reporting is effective, or if our auditors are unable to express an opinion on the effectiveness of our internal controls when they are required to issue such opinion, investors could lose confidence in the accuracy and completeness of our financial reports, which could harm our stock price.

Our failure to raise additional capital or generate cash flows necessary to expand our operations, invest in new technologies and otherwise respond to business opportunities or unforeseen circumstances in the future could reduce our ability to compete successfully and harm our results of operations.

While we believe that our existing cash and cash equivalents will be sufficient to meet our anticipated cash requirements for at least the next 12 months, at some point we may need to raise additional funds, and we may not be able to obtain additional debt or equity financing on favorable terms, if at all. If we raise additional equity financing, our security holders may experience significant dilution of their ownership interests and the value of shares of our common stock could decline. If we engage in debt financing, we may be required to accept terms that restrict our ability to incur additional indebtedness, force us to maintain specified liquidity or other ratios or restrict our ability to pay dividends or make acquisitions. If we need additional capital and cannot raise it on acceptable terms, if at all, we may not be able to, among other things:

Develop and enhance our solutions;

Continue to expand our research and development, sales and marketing organizations;

Hire, train and retain employees;

Respond to competitive pressures or unanticipated working capital requirements; or

Pursue acquisition opportunities.

Our inability to do any of the foregoing could reduce our ability to compete successfully and harm our results of operations.

We may be subject to additional tax liabilities, which would harm our results of operations.

We are subject to income, sales, use, value added, tariffs and other taxes in the United States and other countries in which we conduct business, which laws and rates vary greatly by jurisdiction. Certain jurisdictions in which we do not collect sales, use, value added, tariffs or other taxes on our sales may assert that such taxes are applicable, which could result in tax assessments, penalties and interest, and we may be required to collect such taxes in the future. Significant judgment is required in determining our worldwide provision for income taxes and evaluating our uncertain tax positions. These determinations are highly complex and require detailed analysis of the available information and applicable statutes and regulatory materials. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. Although we believe our tax estimates are reasonable, the final determination of tax audits and any related litigation could be different from our historical tax practices, provisions and accruals. If we receive an adverse ruling as a result of an audit, or we unilaterally determine that we have misinterpreted provisions of the tax regulations to which we are subject, our tax provision, results of operations or cash flows could be harmed. In addition, liabilities associated with taxes are often subject to an extended or indefinite statute of limitations period. Therefore, we may be subject to additional tax liability (including penalties and interest) for any particular year for extended periods of time depending on the specific statute of limitations in the relevant jurisdiction.

Our business is subject to the risks of earthquakes, fire, power outages, floods and other catastrophic events, and to interruption by man-made problems such as terrorism.

A significant natural disaster, such as an earthquake, fire or a flood, or a significant power outage could harm our business, results of operations and financial condition. Natural disasters could affect our manufacturing vendors’ or logistics providers’ ability to perform services such as manufacturing products or assisting with shipments on a timely basis. Our three largest contract manufacturers, which manufactured 58% of our inventory purchases for the year ended December 31, 2017, have manufacturing facilities located in China and Korea. In the event our manufacturing vendors’ information technology systems or manufacturing or logistics abilities are hindered by any of the events discussed above, shipments could be delayed or cancelled, resulting in missing financial targets, such as revenue and shipment targets, for a particular quarter. Further, if a natural disaster occurs in a region from which we derive a significant portion of our revenue, such as metropolitan areas in North America, consumers in those regions may delay or forego purchases of our solutions from dealers and distributors, which

Table of Contents

~~may~~assessments, ~~harm~~penalties ~~our~~and ~~results~~interest, ofand ~~operations~~we ~~for~~may abe ~~particular~~required ~~period.~~to ~~For~~collect ~~example,~~such ~~the~~taxes ~~recent hurricanes~~ in ~~Texas~~the ~~and~~future. ~~Florida~~Significant ~~and~~judgment ~~the~~is ~~fires~~required in ~~northern~~determining ~~California~~our ~~impacted~~worldwide ~~ongoing~~provision ~~projects~~for inincome ~~areas~~taxes ~~where~~and ~~Control4~~evaluating ~~has~~our ~~significant~~uncertain ~~sales~~tax positions. InThese ~~addition,~~determinations ~~acts~~are ofhighly ~~terrorism,~~complex ~~including~~and ~~cyber~~require ~~terrorism~~detailed oranalysis ~~crime,~~of ~~could~~the ~~cause~~available ~~disruptions~~information inand ~~our~~applicable ~~business~~statutes orand regulatory materials. In the ~~business~~ordinary course of our ~~manufacturers~~business, ~~logistics~~there ~~providers,~~are ~~dealers,~~many ~~distributors,~~transactions ~~consumers~~and orcalculations where the ~~economy~~ultimate astax adetermination ~~whole~~is uncertain. ~~Given~~Although ~~our~~we ~~typical~~believe ~~concentration~~our oftax ~~sales~~estimates atare reasonable, the ~~end~~final determination of ~~each~~tax ~~month~~audits and ~~quarter,~~ any ~~disruption~~related inlitigation ~~the~~could ~~business~~be ofdifferent from our ~~manufacturers,~~historical ~~logistics~~tax ~~providers~~practices, ~~dealers,~~provisions ~~distributors~~ and ~~consumers~~accruals. ~~that~~If ~~impacts~~we ~~sales~~receive atan ~~the~~adverse ~~end~~ruling ofas ~~our~~a ~~quarter~~result ~~could~~of ~~have~~an aaudit, ~~greater~~or ~~impact~~we onunilaterally ~~our~~determine ~~quarterly~~that ~~results.~~we ~~All~~have misinterpreted provisions of the ~~aforementioned~~tax ~~risks~~regulations ~~may~~to bewhich ~~augmented~~we ifare ~~the~~subject, ~~disaster~~our ~~recovery~~tax ~~plans~~provision, ~~for~~results usof ~~and~~operations ~~our~~or ~~suppliers~~cash ~~prove~~flows tocould be ~~inadequate~~harmed. ToIn ~~the~~addition, ~~extent~~liabilities ~~that~~associated ~~any~~with oftaxes ~~the~~are ~~above~~often ~~results~~subject into ~~delays~~an extended or ~~cancellations~~indefinite statute of ~~orders~~limitations period. Therefore, orwe ~~delays~~may ~~in,~~be orsubject ~~cancellations~~to ofadditional ~~the~~tax ~~manufacture,~~liability ~~deployment~~(including orpenalties ~~shipment~~and ofinterest) ~~our~~for ~~products,~~any ~~our~~particular ~~business,~~year ~~financial~~for ~~condition~~extended ~~and~~periods ~~results~~of time depending on the specific statute of ~~operations~~limitations ~~would~~in bethe ~~harmed~~relevant jurisdiction.

~~Global~~Our orbusiness ~~regional~~is ~~economic~~subject to the risks of earthquakes, ~~political~~hurricanes, ~~and~~fire, ~~social~~power ~~conditions~~outages, ~~could~~floods ~~harm~~and ~~our~~other ~~business~~catastrophic events, and ~~results~~to ofinterruption ~~operations~~by man-made problems such as terrorism.

~~External~~A ~~factors~~significant natural disaster, such as ~~potential~~an ~~crime~~earthquake, ~~terrorist~~hurricane, ~~attacks~~fire or a flood, or a significant power outage could harm our business, results of operations and financial condition. Natural disasters could affect our manufacturing vendors’ or logistics providers’ ability to perform services such as manufacturing products or assisting with shipments on a timely basis. Our three largest contract manufacturers have manufacturing facilities located in China and Korea. In the event our manufacturing vendors’ information technology systems or manufacturing or logistics abilities are hindered by any of the events discussed above, shipments could be delayed or cancelled, resulting in missing financial targets, such as revenue and shipment targets, for a particular quarter. Further, if a natural disaster occurs in a region from which we derive a significant portion of our revenue, such as metropolitan areas in North America, consumers in those regions may delay or forego purchases of our solutions from dealers and distributors, which may harm our results of operations for a particular period. In addition, acts of terrorism, including cyber terrorism or crime, acts of war, financial crises, trade friction or geopolitical and social turmoil in those parts of the world that serve as markets for our solutions, such as Europe, Asia or elsewhere, could ~~harm~~cause disruptions in our business ~~and~~or ~~results~~the business of ~~operations~~our manufacturers, logistics providers, dealers, distributors, consumers or the economy as a whole. These uncertainties may cause our consumers to reduce discretionary spending on their home and make it difficult for us to accurately plan future business activities. ~~More~~Given ~~generally,~~our ~~these~~typical ~~geopolitical,~~concentration ~~social~~of ~~and~~sales ~~economic~~at ~~conditions~~the ~~could~~end ~~result~~of ineach ~~increased~~month ~~volatility~~and quarter, any disruption in ~~worldwide~~the ~~financial~~business ~~markets~~of our manufacturers, logistics providers, dealers, distributors and ~~economies~~consumers that impacts sales at the end of our quarter could ~~harm~~have a greater impact on our ~~sales~~quarterly results. WeAll ~~are~~of ~~not~~the ~~insured~~aforementioned risks may be augmented if the disaster recovery plans for ~~losses~~us orand ~~interruptions~~our ~~caused~~suppliers byprove ~~terrorist~~to ~~acts~~be orinadequate. ~~acts~~To the extent that any of ~~war.~~the ~~The~~above ~~occurrence~~results in delays or cancellations of ~~any~~orders, or delays in, or cancellations of ~~these~~the ~~events~~manufacture, deployment or ~~circumstances~~shipment ~~could~~of ~~harm~~our products, our business, financial condition and results of operations would be harmed.

Failure to comply with laws and regulations could harm our business.

Our business is subject to regulation by various federal, state, local and foreign governmental agencies, including agencies responsible for monitoring and enforcing employment and labor laws, workplace safety, product safety, environmental laws, consumer privacy and protection laws, anti-bribery laws, import/export controls, federal securities laws and tax laws and regulations. Furthermore, existing regulations are subject to change, and such changes may require among other things, additional testing, development, and certification. As we continue to develop new products, acquire companies with new product lines and expand our geographical footprint to market and sell products directly in new jurisdictions, we may become subject to additional rules and regulations, and these regulatory requirements may be different from or more stringent than those in the United States and Europe. While we have obtained these certifications for many of our products currently sold in expanded jurisdictions, we continue to work towards full and continued compliance for all of our products sold. Delays in meeting, or failure to meet, these certification standards may cause us to miss market opportunities and may hinder us from entering and selling our products in those markets. Noncompliance with applicable regulations or requirements could subject us to investigations, sanctions, enjoinders of future shipments, mandatory product recalls, seizures, enforcement actions, disgorgement of profits, fines, damages, civil and criminal penalties or injunctions. If any governmental sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, our business, results of operations and financial condition could be materially harmed. In addition, responding to any action will likely result in a significant diversion of management’s attention and resources and an increase in professional fees. Enforcement actions and sanctions could further harm our business, results of operations and financial condition.

Table of Contents

Governmental regulations affecting the import or export of our products could harm our revenues.

The United States and various foreign governments have imposed controls, export license requirements and restrictions on the import or export of some technologies, especially encryption technology, and may impose additional or broader controls, export license requirements and restrictions on the import or export of some technologies in the future. In addition, from time to time, governmental agencies have proposed additional regulation of encryption technology, such as requiring the escrow and governmental recovery of private encryption keys. Although we do not believe that any of our products currently require an export license, if our products or components of our products become subject to governmental regulation of encryption technology or other governmental regulation of imports or exports, we may be required to obtain import or export approval for such products, which could increase our costs and harm our international and domestic sales and our revenue. In addition, failure to comply with such regulations could result in penalties, costs and restrictions on export privileges, which would harm our results of operations.

Regulations related to “conflict minerals” may force us to incur additional expenses, may result in damage to our business reputation and may adversely impact our ability to conduct our business.

Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), we are required to adhere to certain reporting and other requirements regarding the use of certain minerals and derivative metals (referred to as “conflict minerals,” regardless of their actual country of origin) in our products. Some of these metals are commonly used in electronic equipment and devices, including our products. These requirements require that we investigate, disclose and report whether or not any such metals in our products originated from the Democratic Republic of Congo or adjoining countries. We do not directly source any of our own raw conflict minerals, rather we have an extremely complex supply chain, with numerous suppliers, many of whom may not be obligated to investigate their own supply chains, for the components and parts used in each of our products. As a result, we may incur significant costs to comply with the diligence and disclosure requirements, including costs related to determining the source of any of the relevant metals used in our products and other potential changes to products or sources of supply as a consequence of such verification activities. In addition, because our supply chain is so complex, we may not be able to sufficiently verify the origin of all relevant metals used in our products through the due diligence procedures that we implement, which may harm our business reputation. We may incur reputational damage if we determine that any of our products contain minerals or derivative metals that are not conflict free or if we are unable to sufficiently verify the source for all conflict minerals used in our products through the procedures we may implement. Furthermore, key components and parts that can be shown to be “conflict free” may not be available to us in sufficient quantity, or at all, or may only be available at significantly higher cost to us. If we are not able to meet customer requirements, customers may choose to disqualify us as a supplier. Any of these outcomes could adversely affect our business, financial condition or operating results.

Table of Contents

(referred to as “conflict minerals,” regardless of their actual country of origin) in our products. Some of these metals are commonly used in electronic equipment and devices, including our products. These requirements require that we investigate, disclose and report whether or not any such metals in our products originated from the Democratic Republic of Congo or adjoining countries. We do not directly source any of our own raw conflict minerals, rather we have an extremely complex supply chain, with numerous suppliers, many of whom may not be obligated to investigate their own supply chains, for the components and parts used in each of our products. As a result, we may incur significant costs to comply with the diligence and disclosure requirements, including costs related to determining the source of any of the relevant metals used in our products and other potential changes to products or sources of supply as a consequence of such verification activities. Because these regulations are relatively new, we and the companies comprising our supply chain each have a limited history of investigating, disclosing and reporting use of these minerals, and there is a limited history of regulatory guidance regarding compliance with these requirements. In addition, because our supply chain is so complex, we may not be able to sufficiently verify the origin of all relevant metals used in our products through the due diligence procedures that we implement, which may harm our business reputation. We may incur reputational damage if we determine that any of our products contain minerals or derivative metals that are not conflict free or if we are unable to sufficiently verify the source for all conflict minerals used in our products through the procedures we may implement. Furthermore, key components and parts that can be shown to be “conflict free” may not be available to us in sufficient quantity, or at all, or may only be available at significantly higher cost to us. If we are not able to meet customer requirements, customers may choose to disqualify us as a supplier. Any of these outcomes could adversely affect our business, financial condition or operating results.

Health care reform could increase our cost of labor

In March 2010, the Patient Protection and Affordable Care Act (the “ACA”) was signed into U.S. law. The ACA is comprehensive U.S. health care legislation that includes provisions that subject us to potential penalties unless we offer certain employees minimum essential health care coverage that is affordable and provides minimum value. ~~Recent~~In ~~changes,~~order ~~especially~~to comply with the employer mandate ~~and~~provision ~~employer~~of ~~penalties~~the ACA that became effective January 1, 2015, ~~may increase our labor costs significantly in future years. In order to comply with the employer mandate provision of the ACA,~~ we offer health care coverage to all applicable employees eligible for coverage under the ACA. Designating employees as eligible is complex, and is subject to challenge by employees and the Internal Revenue Service. While we believe we have properly identified eligible employees, a later determination that we failed to offer the required health coverage to eligible employees could result in penalties that may harm our business or reputation. We cannot be certain that compliant insurance coverage will remain available to us on reasonable terms, and we could face additional risks arising from future changes to the ACA or other legislation or executive orders that repeal and replace in whole or in part the ACA.

We incur increased costs and demands upon management as a result of complying with the laws and regulations affecting public companies, which could harm our results of operations and our ability to attract and retain qualified executives and board members.

As a public company, we have incurred and will continue to incur significant legal, accounting and other expenses that we did not incur as a private company, including costs associated with public company reporting and corporate governance requirements. These requirements include compliance with Section 404 and other provisions of the Sarbanes-Oxley Act of 2002, the Dodd-Frank Act, as well as rules implemented by the Securities and Exchange Commission (“SEC”), The NASDAQ Stock Market LLC, and other applicable securities or exchange-related rules and regulations. In addition, our management team has also had to adapt to the requirements of being a public company. Complying with these rules and regulations substantially increases our legal and financial compliance costs and makes some activities more difficult, time consuming or costly. These compliance requirements and costs will increase once we are no longer an “emerging growth company,” as defined in the JOBS Act, which will occur December 31, 2018 at the latest.

Government regulations of wireless networking in the United States or internationally may result in unanticipated costs and failure to comply with such laws and regulations could harm our business.

Our wireless communication and networking products operate through the transmission of radio signals and radio emissions are subject to regulation in the United States and in other countries in which we do business. In the United States, various federal agencies, including the Federal Communications Commission (“FCC”), and various state agencies have promulgated regulations that concern the use of radio/electromagnetic emissions standards. Member countries of the European Union have enacted similar standards concerning electrical safety and electromagnetic compatibility and emissions. As these regulations and standards evolve, and if new regulations or standards are implemented, we will be required to modify our ~~products or develop and support new versions of our products, and our compliance with these regulations and standards may~~

Table of Contents

products or develop and support new versions of our products, and our compliance with these regulations and standards may become more burdensome. The failure of our products to comply, or delays in compliance, with the various existing and evolving industry regulations and standards could prevent or delay introduction of our products, which could harm our business. Our inability to alter our products to address these requirements and any regulatory changes may have a material adverse effect on our business, operating results and financial condition. In addition, dealer and end -user uncertainty regarding future policies may also affect demand for wireless networking products, including our products.

Risks Related to Our International Operations

In recent years, a significant amount of our revenue has come from sales outside of the United States, and we are therefore subject to a number of risks associated with international sales and operations.

We have a limited history of marketing, selling, and supporting our products and services internationally. However, international revenue (excluding Canada) accounted for 2223% of our total revenue for the year ended December 31, ~~2017~~2018, and ~~we expect~~ that percentage may grow in the future. As a result, we must hire and train experienced personnel to staff and manage our foreign operations. To the extent that we experience difficulties in recruiting, training, managing, and retaining international dealers, distributors, and international staff, and specifically staff related to sales management and sales personnel, we may experience difficulties in productivity in foreign markets.

If we are not able to increase the sales of our solutions to consumers located outside of North America, our results of operations or revenue growth may be harmed. In addition, in connection with our expansion into foreign markets, we are a receiver of currencies other than the U.S. dollar. Accordingly, changes in exchange rates, and in particular a strengthening of the U.S. dollar, will negatively affect our net sales as expressed in U.S. dollars. There is also a risk that we will have to adjust local currency product pricing due to competitive pressures when there has been significant volatility in foreign currency exchange rates.

Conducting and launching operations on an international scale requires close coordination of activities across multiple jurisdictions and time zones and consumes significant management resources. Our limited experience in operating our business in certain countries outside of the United States increases the risk that our current and any future international expansion efforts will not be successful. Conducting international operations subjects us to risks that, generally, we do not face in the United States, including:

Fluctuations in currency exchange rates;

Unexpected changes in foreign regulatory requirements;

Longer accounts receivable payment cycles and difficulties in collecting accounts receivable;

Difficulties in managing and staffing international operations, including differences in labor laws, which may result in higher personnel-related liabilities and expenses;

Potentially adverse tax consequences, including the complexities of foreign value added tax systems and restrictions on the repatriation of earnings;

Localization of our solutions and other materials, including translation into foreign languages and associated expenses;

Localization of applicable agreements under applicable foreign law and differing legal standards and risks;

The burdens of complying with a wide variety of foreign laws and different legal standards, including laws and regulations related to import/export, privacy, the transfer of personal information across borders, and data security and limitations on liability;

Increased financial accounting and reporting burdens and complexities;

Political, social and economic instability abroad, terrorist attacks and security concerns in general, including crime and cyber security; and

Table of Contents

Reduced or varied protection for intellectual property rights in some countries.

The impact of any one of these could harm our international business and, consequently, our results of operations generally. Additionally, operating in international markets also requires significant management attention and financial resources. We cannot be certain that the investment and additional resources required in establishing, acquiring or integrating operations and personnel in other countries will produce desired levels of revenue or profitability.

We conduct a significant amount of business in the European Union, including through our office located in England, and our operations may be affected by the results of the ~~recent~~ referendum vote by the United Kingdom to leave the European Union.

On June 23, 2016, the citizens of the United Kingdom approved a referendum to leave the European Union (“Brexit”), which led to significant political, economic and legal uncertainty. InOn ~~addition~~March 29, 2017, the ~~Brexit~~United ~~vote~~Kingdom ~~triggered~~provided aits ~~devaluing~~official ofnotice to the ~~pound~~European ~~sterling~~Council ~~relative~~that it intends to leave the ~~euro~~European ~~and~~Union, triggering the ~~U.S.~~two-year ~~dollar~~transitionary period, ~~and~~which inis ~~Europe~~expiring weon ~~generally~~March ~~sell~~29, ~~our~~2019. At ~~products~~this point the United Kingdom and ~~incur~~the ~~expense~~European inUnion ~~local~~still ~~currencies~~have ~~including~~not ~~the~~agreed ~~pound~~upon ~~sterling~~a ~~and~~negotiated ~~the~~exit ~~euro~~framework, ~~but~~which ~~incur~~means ~~exchange~~that ~~rate~~there ~~gains~~is ~~and~~considerable ~~losses~~uncertainty ~~for~~about ~~U.S.~~how ~~dollar~~the ~~denominated~~new ~~assets~~relationship ~~and~~will ~~liabilities~~be ~~including~~implemented. ~~intercompany~~Given ~~and~~the ~~third-party~~lack ~~accounts~~of ~~receivables~~comparable ~~and~~precedent, ~~payables.~~it ~~The~~is ~~pound~~unclear ~~has~~how ~~subsequently~~Brexit ~~recovered~~will ~~some~~affect ofeconomic ~~its~~conditions ~~value~~in ~~against~~the United Kingdom, the ~~dollar~~European Union, or globally, and Control4 specifically. Because we ~~enter~~have ~~into~~sales ~~forward~~throughout ~~contracts~~the toEuropean ~~help~~Union ~~offset~~and offices in England and Germany, it is possible that Brexit could disrupt our ~~exposure~~current tobusiness ~~movements~~structure in ~~foreign~~the ~~currency~~European ~~exchange~~Union ~~rates~~and ~~relative~~may require us to restructure some or all of ~~these~~our ~~U.S.~~operations ~~dollar~~in ~~denominated~~this ~~balances;~~region. In ~~however~~addition, ~~there~~the isresulting nofluctuation ~~guarantee~~in ~~that~~currencies weand ~~will~~market ~~correctly~~conditions ~~anticipate~~may ~~the~~adversely ~~optimal~~affect ~~amounts~~our ofbusiness, ~~such~~results ~~offsets~~of inoperations ~~the~~and ~~future~~financial condition.

On March 29, 2017, the United Kingdom provided its official notice to the European Council that it intends to leave the European Union, triggering the two-year transitionary period. The long-term nature of the United Kingdom’s relationship with the European Union after Brexit is completed is still unclear and there is considerable uncertainty when any relationship will be agreed and implemented. During this transitionary period, negotiations will take place to unravel all of the existing legal, political and financial frameworks and obligations, and put new structures in place. At this stage, it is uncertain what the final results of these negotiations will be and, given the lack of comparable precedent, it is unclear how Brexit will affect economic conditions in the United Kingdom, the European Union, or globally, and Control4 specifically. Because Control4 has sales throughout the European Union and offices in England and Germany, it is possible that Brexit may require us to restructure some or all of our operations, and depending on what is negotiated, could impair our ability to transact business in other countries in the European Union. In addition, the fluctuation in currencies and market conditions may adversely affect our business, results of operations and financial condition.

Due to the global nature of our business, we could be harmed by violations of the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act or similar anti-corruption laws in other jurisdictions in which we operate, or various international trade and export laws.

The global nature of our business creates various domestic and local regulatory challenges. The U.S. Foreign Corrupt Practices Act (the “FCPA”), the U.K. Bribery Act 2010 (the “U.K. Bribery Act”), and similar anti-corruption laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to government officials for the purpose of obtaining or retaining business. In addition, U.S.-based companies are required to maintain records that accurately and fairly represent their transactions and have an adequate system of internal accounting controls. We operate in areas of the world that experience corruption by government officials to some degree and, in certain circumstances, compliance with anti-corruption laws may conflict with local customs and practices. Although we periodically train our employees and agents about these anti-corruption laws, we cannot assure that our training is effective in reducing the risks attendant to such anti-corruption laws. Our global operations require us to import from and export to several countries, which geographically stretches our compliance obligations. In addition, changes in such laws could result in increased regulatory requirements and compliance costs, which could harm our business, financial condition and results of operations. Our employees or other agents may engage in prohibited conduct and render us responsible under the FCPA, the U.K. Bribery Act or similar anti-corruption laws. If we are found to be in violation of the FCPA, the U.K. Bribery Act or other anti-corruption laws (either due to acts or inadvertence of our employees, or due to the acts or inadvertence of other parties), we could suffer criminal or civil penalties or other sanctions, which could harm our business.

Table of Contents

Risks Related to Our Intellectual Property

If we fail to protect our intellectual property and proprietary rights adequately, our business could be harmed.

We believe that proprietary technology is essential to establishing and maintaining our leadership position. We seek to protect our intellectual property through trade secrets, confidentiality, non-compete, non-solicitation and nondisclosure agreements, and by registering numerous patents, trademarks, copyrights, and/or domain names in various justifications, as well as using other measures, some of which afford only limited protection. We also rely on patent, trademark, trade secret and copyright laws to protect our intellectual property. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our technology or to obtain and use information that we regard as proprietary. Our means of protecting our proprietary rights may not be adequate or our competitors may independently develop similar or superior technology, or design around our intellectual property. In addition, the laws of some foreign countries do not protect our proprietary rights to as great an extent as the laws of the United States. Intellectual property protections may also be unavailable, limited or difficult to obtain and enforce in some countries, which could make it easier for competitors to capture ~~market share. Our failure or inability to adequately protect our intellectual property and proprietary rights could harm our business, financial condition and results of operations.~~

Table of Contents

market share. Our failure or inability to adequately protect our intellectual property and proprietary rights could harm our business, financial condition and results of operations.

To prevent substantial unauthorized use of our intellectual property rights, it may be necessary to prosecute actions for infringement and/or misappropriation of our proprietary rights against third parties. Any such action could result in significant costs and diversion of our resources and management’s attention, and we cannot assure that we will be successful in such action. Furthermore, many of our current and potential competitors have the ability to dedicate substantially greater resources to enforce their intellectual property rights than we do. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property.

An assertion by a third party that we are infringing its intellectual property could subject us to costly and time-consuming litigation and lead to expensive licenses or significant liabilities in the event of an adverse judgment.

The industries in which we compete are characterized by the existence of a large number of patents, copyrights, trademarks and trade secrets, and by frequent litigation based on allegations of infringement or other violations of intellectual property rights. We have been subject to patent litigation in the past and we may be subject to similar litigation in the future. Given that our solution integrates with almost all network aware products, the risk that our solution may be subject to these allegations is exacerbated. As we seek to extend our solutions, we could be constrained by the intellectual property rights of others, including patent holding companies.

We are defendants in legal proceedings related to intellectual property rights from time to time ~~(a summary of current litigation and outstanding claims that if determined adversely to us~~, ~~we believe would have a material adverse effect on our business, results of operations, financial condition or cash flows, if any, is set forth in Item 1 of Part II, Legal Proceedings),~~ and in the past, we have entered into settlement agreements relating to contractual claims and alleged patent infringements, which have included future royalty payments on certain products, the payment of a lump sum amount for alleged past damages, and/or the payment of a fixed amount in exchange for a covenant not to sue.

We might not prevail in any current or future intellectual property infringement litigation given the complex legal and technical issues and inherent uncertainties in such litigation. Defending such claims, regardless of their merit, could be time-consuming and distracting to management, result in costly litigation or settlement, cause development delays or require us to enter into royalty or licensing agreements. In addition, we currently have a limited portfolio of issued patents compared to our larger competitors, and therefore may not be able to effectively utilize our intellectual property portfolio to assert defenses or counterclaims, or negotiate cross-licenses in response to patent infringement claims or litigation brought against us by third parties. Further, litigation may involve patent holding companies or other adverse patent owners who have no relevant products or revenues and against which our potential patents provide no deterrence, and many other potential litigants have the capability to dedicate substantially greater resources to enforce their intellectual property rights and to defend claims that may be brought against them. If our solutions exceed the scope of in-bound licenses or violate any third-party proprietary rights, we could be required to withdraw those solutions from the market, re-develop those solutions or seek to obtain licenses from third parties, which might not be available on reasonable terms or at all. Any efforts to re-develop our solutions, obtain licenses from third parties on favorable terms or license a substitute technology might not be successful and, in any case, might substantially increase our costs and harm our business, financial condition and results of operations. If we were compelled to withdraw any of our solutions from the market, our business, financial condition and results of operations could be harmed.

We are generally obligated to indemnify our independent dealers, distributors and partners for certain expenses and liabilities resulting from intellectual property infringement claims regarding our products, which could force us to incur substantial costs.

We have agreed to indemnify our independent dealers, distributors and other partners for certain intellectual property infringement claims regarding our products and other materials we provide to them. As a result, in the case of infringement claims against these dealers, distributors and partners, we could be required to indemnify them for losses resulting from such claims. We expect that some of our dealers, distributors and partners may seek indemnification from us in connection with infringement claims brought against them. We evaluate each such request on a case-by-case basis and we may not succeed in refuting any such claim we believe to be unjustified. If a dealer, distributor or partner elects to invest resources in enforcing a claim for indemnification against us that we believe is unjustified, we could incur significant costs disputing it. If we do not succeed in disputing it, we could face substantial liability.

Table of Contents

We have agreed, and expect to continue to agree, to indemnify our independent dealers, distributors and other partners for certain intellectual property infringement claims regarding our products. As a result, in the case of infringement claims against these dealers, distributors and partners, we could be required to indemnify them for losses resulting from such claims or to refund amounts they have paid to us. We expect that some of our dealers, distributors and partners may seek indemnification from us in connection with infringement claims brought against them. We evaluate each such request on a case-by-case basis and we may not succeed in refuting any such claim we believe to be unjustified. If a dealer, distributor or partner elects to invest resources in enforcing a claim for indemnification against us, we could incur significant costs disputing it. If we do not succeed in disputing it, we could face substantial liability.

The use of open source software in our solutions may expose us to additional risks and harm our intellectual property.

Some of our solutions use or incorporate software that is subject to one or more open source licenses. Open source software is typically freely accessible, usable and modifiable. Certain open source software licenses require a user who intends to distribute the open source software as a component of the user’s software to disclose publicly part or all of the source code to the user’s software. In addition, certain open source software licenses require the user of such software to make any derivative works of the open source code available to others on potentially unfavorable terms or at no cost.

The terms of many open source licenses to which we are subject have not been interpreted by U.S. or foreign courts, and accordingly there is a risk that those licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to commercialize our solutions. In that event, we could be required to seek licenses from third parties in order to continue offering our solutions, to re-develop our solutions, to discontinue sales of our solutions or to release our proprietary software code under the terms of an open source license, any of which could harm our business. Further, given the nature of open source software, it may be more likely that third parties might assert copyright and other intellectual property infringement claims against us based on our use of these open source software programs. Litigation could be costly for us to defend, have a negative effect on our operating results and financial condition, or require us to devote additional research and development resources to change our solutions.

We monitor the use of all open source software in our products, solutions, processes and technology, and seek to ensure that no open source software is used in such a way as to require us to disclose the source code to the related product or solution when we do not wish to do so. Despite these precautions, if a third-party software provider has incorporated certain types of open source software into software we license from such third-party provider for our solutions without our knowledge or if we have otherwise incorporated unfavorable open source software into our solutions, we could, under certain circumstances, be required to disclose the related source code to our solutions. This could harm our intellectual property position and our business, results of operations and financial condition.

We rely on the availability of third-party licenses. If these licenses are available to us only on less favorable terms or not at all in the future, our business and results of operations may be harmed.

We have incorporated third-party licensed technology into our products. It may be necessary in the future to renew licenses relating to various aspects of these products or to seek additional licenses for existing or new products. The necessary licenses may not be available on acceptable terms, or at all. The inability to obtain certain licenses or other rights, or to obtain those licenses or rights on favorable terms, or the need to engage in litigation regarding these matters, could result in our inability to include certain features in our products or delays in product releases until such time, if ever, as equivalent technology could be identified, licensed or developed and integrated into our products, which may have a material adverse effect on our business, results of operations and financial condition. Moreover, the inclusion in our products of intellectual property licensed from third parties on a nonexclusive basis could limit our ability to protect our proprietary rights in our products.

Risks Related to Owning Our Common Stock

Our share price may be volatile, which may result in securities class action litigation against us.

The market price of our common stock has been and again could be subject to wide fluctuations in response to many risk factors listed in this section and other factors beyond our control, including but not limited to:

Table of Contents

risk factors listed in this section and other factors beyond our control, including but not limited to:

Actual or anticipated fluctuations in our financial condition and results of operations;

Overall conditions in our industry and market;

Addition or loss of independent dealers, distributors or consumers;

Changes in laws or regulations applicable to our solutions;

Actual or anticipated changes in our growth rate relative to our competitors;

Table of Contents

Announcements by us, our competitors or strategic buyers of significant acquisitions, strategic partnerships, joint ventures or capital commitments;

Additions or departures of key personnel;

Competition from existing products or new products that may emerge;

Issuance of new or updated research or reports by securities analysts, activist investors and those who short our stock;

Fluctuations in the valuation of companies perceived by investors to be comparable to us;

Disputes or other developments related to proprietary rights, including patents, litigation matters and our ability to obtain intellectual property protection for our technologies;

Actual or threatened litigation or adverse regulatory action against us;

Trading of our common stock by us or our stockholders, or issuance of new shares;

Share price and volume fluctuations attributable to inconsistent trading volume levels of our shares; and

General economic, geopolitical and market conditions.

Furthermore, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, geopolitical and market conditions such as recessions, interest rate changes or international currency and capital markets fluctuation, may harm the market price of our common stock. In the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could harm our business.

If securities or industry analysts do not publish research or reports about our business, or publish negative reports about our business, our share price and trading volume could decline.

The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about our business. We do not have any control over these analysts, activist investors, or those who short our stock. If one or more of the foregoing analysts who cover us, activist investors, or those who short our stock downgrade our shares, change their opinion of our shares, or publish negative or false reports for their own purposes, our share price will likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish research or reports on us, we could lose visibility in the financial markets, which could cause our stock price or trading volume to decline.

Table of Contents

The concentration of ownership of our capital stock limits your ability to influence corporate matters.

As of December 31, ~~2017~~2018, our directors, executive officers and holders of more than 5% of our common stock, together with their affiliates, beneficially own, in the aggregate, 2624% of our outstanding common stock. As a result, these stockholders, acting together, may have the ability to significantly influence the outcome of matters submitted to our stockholders for approval, including the election of directors and any merger, consolidation or sale of all or substantially all of our assets. In addition, these stockholders, acting together, control or significantly influence most matters related to the management and affairs of our company. Accordingly, this concentration of ownership and managerial authority might harm the market price of our common stock by:

Delaying, deferring or preventing a change in corporate control;

Impeding a merger, consolidation, takeover or other business combination involving us; or

Table of Contents

Discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us.

Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management and limit the market price of our common stock.

Provisions in our amended and restated certificate of incorporation and amended and restated bylaws may have the effect of delaying or preventing a change of control or changes in our management. Our amended and restated certificate of incorporation and amended and restated include provisions that:

Authorize our board of directors to issue, without further action by the stockholders, up to 25,000,000 shares of undesignated preferred stock;

Require that any action to be taken by our stockholders be effected at a duly called annual or special meeting and not by written consent;

Specify that special meetings of our stockholders can be called only by our board of directors, the Chairman of the Board, the Chief Executive Officer or the President;

Establish an advance notice procedure for stockholder approvals to be brought before an annual meeting of our stockholders, including proposed nominations of persons for election to our board of directors;

Provide that directors may be removed only for cause;

Provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum;

Establish that our board of directors is divided into three classes—Class I, Class II and Class III—with each class serving staggered terms; and

Require a super-majority of votes to amend certain of the above-mentioned provisions.

These provisions, alone or together, could delay or prevent hostile takeovers and changes in control. These provisions may also frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management.

As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation law, which prevents some stockholders holding more than 15% of our outstanding common stock from engaging in certain business combinations without approval of the holders of substantially all of our outstanding common stock.

Table of Contents

Any provision of our certificate of incorporation or bylaws or Delaware law that has the effect of delaying or deterring a change of control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.

ITEM 1B. Unresolved Staff Comments

None.

ITEM 2. Properties

Our corporate headquarters are located in Salt Lake City, Utah, where we lease approximately 85110,000 square feet of commercial space under a lease that expires on June 30, ~~2018~~2021. We ~~are currently in the process of renegotiating this lease. We~~ use this space for sales, research and development, dealer and distributor service and support, and administrative purposes. We also lease approximately 60,000 square feet of warehouse space in Salt Lake City, Utah, under a lease that expires on March 31, 2019. and approximately 64,000 square feet of additional

In connection with our sales efforts in the United States and abroad, we lease office space typically on a short-term renewable basis domestically in San Jose, California; Charlotte, North Carolina; Hayward, CA; Orange County, CA; and Chicago, Illinois, and internationally in York, United Kingdom; Shanghai, China; Melbourne, Australia; Frankfurt, Germany; and New Belgrade, Serbia. Furthermore, in connection with the acquisition of Triad Speakers in February 2017, we have added warehouse space in Portland, Oregon, and in connection with the acquisition of ihiji, Inc. in December 2017, we have added office space in Austin, Texas, both under short-term, renewable leases.34

WeTable ~~believe~~of that our facilities are suitable to meet our current needs. We intend to expand our existing facilities or add new facilities as we add employees and enter new geographic markets, and we believe that suitable additional or alternative space will be available as needed to accommodate any such growth. However, we expect to incur additional expenses in connection with such new or expanded facilities.Contents

warehouse space in Hebron, Kentucky under a lease that expires on November 30, 2025. We also have warehouse and production space in Portland, Oregon.

We believe that our facilities are suitable to meet our current needs. We intend to expand our existing facilities or add new facilities as we add employees and enter new geographic markets, and we believe that suitable additional or alternative space will be available as needed to accommodate any such growth. However, we expect to incur additional expenses in connection with such new or expanded facilities

ITEM 3. Legal Proceedings

From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. We are not presently a party to any legal proceeding that, if determined adversely to us, we believe would individually or in the aggregate have a material adverse effect on our business, results of operations, financial condition or cash flows.

ITEM 4. Mine Safety Disclosures

Not applicable.

Table of Contents

PART II.

ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our common stock has been listed on the NASDAQ Global Select Market under the symbol “CTRL” since August 2, 2013. Prior to that time, there was no public market for our common stock.

Price Range of Common Stock

The price range per share of common stock presented below represents the highest and lowest closing prices for our common stock on the NASDAQ Global Select Market during each quarter since our initial public offering. On February 9, 2018, the last reported sale price for our common stock on the NASDAQ Global Select Market was $24.12 per share.

2017	High		Low
Fourth Quarter	$	35.76	$	26.87
Third Quarter	$	29.46	$	19.27
Second Quarter	$	20.88	$	14.82
First Quarter	$	16.00	$	10.58

2016	High		Low
Fourth Quarter	$	12.28	$	9.98
Third Quarter	$	12.28	$	8.03
Second Quarter	$	8.50	$	7.13
First Quarter	$	9.07	$	5.67

Holders of Record

As of February 97, ~~2018~~2019, there were 1715 holders of record of our common stock. The actual number of stockholders is greater than this number of holders of record, and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees. This number of holders of record also does not include stockholders whose shares may be held in trust by other entities.

Stock Performance Graph and Cumulative Total Return

Notwithstanding any statement to the contrary in any of our previous or future filings with the SEC, the following information relating to the price performance of our common stock shall not be deemed to be “filed” with the SEC or to be “soliciting material” under the Securities Exchange Act of 1934, as amended, or the Exchange Act, and it shall not be deemed to be incorporated by reference into any of our filings under the Securities Act or the Exchange Act, except to the extent we specifically incorporate it by reference into such filing.

The following graph shows a comparison from August 2, 2013 (the date our common stock commenced trading on the NASDAQ Global Select Market) through December 31, ~~2017~~2018 of the total cumulative return of our common stock with the total cumulative return of the S&P 500 Index and S&P 500 Information Technology Sector Index. The comparisons in this graph below are based on historical data and are not intended to forecast or be indicative of future performance of our common stock.

The comparison assumes that $100.00 was invested in our common stock, the S&P 500 Index and S&P 500 Information Technology Sector Index, and assumes reinvestment of dividends, if any. The graph assumes the initial value of our common stock on August 2, 2013 was the closing sale price on that day of $20.05 per share and not the initial offering price to the public of $16.00 per share. The performance shown on the graph below is based on historical results and is not intended to suggest future performance.

Table of Contents

Dividend Policy

We have never declared or paid any cash dividends on our common stock and do not intend to pay any cash dividends in the foreseeable future. We anticipate that we will retain all of our future earnings for use in the operation of our business and for general corporate purposes. Any determination to pay dividends in the future will be at the discretion of our Board of Directors. ~~Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.~~

Unregistered Sale of Equity Securities

None.

Issuer Purchases of Equity Securities

In May 2015 and again in February 2018, our Board of Directors authorized the repurchase of up to $20 million in Control4 common stock from time to time on the open market. ~~During~~In October 2018, the ~~fiscal~~Company’s ~~quarter~~Board ~~ended~~of ~~December~~Directors ~~31,~~authorized ~~2017,~~the weexpansion ~~did~~of ~~not~~the repurchase ~~any~~program ~~outstanding~~providing ~~common~~approval ~~stock~~for ~~under~~ the ~~share~~Company to repurchase ~~program.~~an ~~All~~additional ~~shares~~$20 ofmillion in Control4 common stock ~~held~~from intime ~~treasury~~to ~~were~~time ~~retired~~on asthe ofopen market until December 31, ~~2017~~2019. During the fiscal quarter ended December 31, 2018, we repurchased 337,264 shares for $7.9 million, as set forth in the table below:

In February 2018, the Company’s Board of Directors authorized the expansion of the repurchase program providing approval for the Company to repurchase up to $20 million in Control4 common stock from time to time on the open market Any shares repurchased will be in compliance with applicable legal requirements, at prices determined to be attractive and in the best interests of both the company and its stockholders.


				Total		Dollar Value
				Number of		of Shares
				Shares		that May
				Purchased as		Yet Be
	Total			Part of		Purchased
	Number of		Average	Publicly		Under the
	Shares		Price Paid	Announced		Plan
Period	Purchased		Per Share(1)	Plan		(in thousands)
November 1 - November 30, 2018	337,264	$	23.47	337,264
	337,264			337,264	$	16,128

~~Securities~~ All ~~Authorized~~shares ~~for~~of ~~Issuance~~common ~~under~~stock ~~Equity~~held ~~Compensation~~in ~~Plans~~treasury were retired as of December 31, 2018.

See Part III, Item 12 of this Form 10-K for disclosure relating to our equity compensation plans. Such information will be included in our proxy statement relating to our 2018 annual meeting of stockholders, which is incorporated herein by reference.

Table of Contents

As of February 7, 2019, the balance remaining on the Board approved share repurchase program is $15.6 million. Any shares repurchased will be in compliance with applicable legal requirements, at prices believed to be attractive and in the best interests of both the Company and its stockholders.

Securities Authorized for Issuance under Equity Compensation Plans

See Part III, Item 12 of this Form 10-K for disclosure relating to our equity compensation plans. Such information will be included in our proxy statement relating to our 2019 annual meeting of stockholders, which is incorporated herein by reference.

Table of Contents

ITEM 6. Selected Financial Data

We have derived the selected consolidated statements of operations data for the years ended December 31, ~~2017~~2018, ~~2016~~2017 and ~~2015~~2016 and the selected consolidated balance sheet data as of December 31, ~~2017~~2018 and ~~2016~~2017 from our audited consolidated financial statements and related notes included elsewhere in this Form 10-K. We have derived the selected consolidated statements of operations data for the years ended December 31, ~~2014~~2015 and ~~2013~~2014 and the selected consolidated balance sheet data as of December 31, ~~2015~~2016, ~~2014~~2015 and ~~2013~~2014 from our audited consolidated financial statements not included in this Form 10-K. The following selected consolidated financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this Form 10-K. Our historical results are not necessarily indicative of the results to be expected for any future period and the results for any interim period are not necessarily indicative of the results to be expected in the full year.

Years Ended December 31,

2017

2016

2015

2014

2013

2018

2017*As adjusted

2016*As adjusted

2015

2014

(In thousands, except per share data)

Consolidated Statements of Operations Data:

Revenue

~~244~~272,~~725~~458

~~208~~244,~~802~~175

~~163~~208,~~179~~130

~~148~~163,~~800~~179

~~128~~148,~~511~~800

Cost of revenue

~~120~~130,~~230~~455

~~105~~120,~~123~~230

81105,~~645~~123

7281,~~443~~645

6472,~~234~~443

Cost of revenue—inventory purchase commitment

—

(380)

Gross margin

142,003

123,945

103,007

81,534

76,357

Gross margin

124,495

103,679

81,534

76,357

64,657

Operating expenses:

Research and development

4043,~~638~~605

3540,~~985~~638

3235,~~385~~985

2732,~~365~~385

2427,~~979~~365

Sales and marketing

4750,~~825~~834

4247,~~198~~825

3242,~~594~~198

2532,~~887~~594

2125,~~975~~887

General and administrative

2126,~~926~~399

2021,~~309~~926

1720,~~355~~309

1417,~~195~~355

1214,~~329~~195

Litigation settlement

—

~~475~~—

21475

4721

~~440~~47

Total operating expenses

~~110~~120,~~389~~838

98110,~~967~~389

8298,~~355~~967

6782,~~494~~355

5967,~~723~~494

Income (loss) from operations

1421,~~106~~165

413,~~712~~556

~~(821)~~4,040

~~8,863~~(821)

48,~~934~~863

Interest and other expense, net

~~331~~(316)

~~(542)~~331

(~~563~~542)

(~~296~~563)

(~~1,183~~296)

Income (loss) before income taxes

1420,~~437~~849

413,~~170~~887

(13,~~384)~~498

8(1,~~567~~384)

38,~~751~~567

Income tax expense (benefit)

(122,~~542~~991)

(81,~~784~~568)

~~268~~(8,800)

~~411~~268

~~248~~411

Net income (loss)

1543,~~979~~840

1215,~~954~~455

(112,~~652)~~298

8(1,~~156~~652)

38,~~503~~156

Net income (loss) per common share:

Basic

01.6467

0.5562

(0.~~07)~~53

(0.3407)

0.3334

Diluted

01.60

0.5358

(0.~~07)~~50

(0.3207)

0.1632

*The consolidated statement of operations data for the years ended December 31, 2017 and 2016 reflect an adjustment related to the adoption of “Revenue from Contracts with Customers (Topic 606),” (“ASC 606”). The consolidated statements of operations data for the years ended December 31, 2015, 2014 and 2013 do not reflect the adoption of ASC 606.

Non-GAAP Financial Measures

In addition to our GAAP operating results, we use certain non-GAAP financial measures to understand and evaluate our operating performance and trends, to prepare and approve our annual budget, and to develop short- and long-term operational plans. These measures, which we refer to as our non-GAAP financial measures, are not prepared in accordance with generally accepted accounting principles in the United States. Non-GAAP gross margin, non-GAAP income from operations, non-GAAP net income, and non-GAAP net income per share exclude non-cash expenses related to stock-based compensation, amortization of intangible assets, ~~acquisition-related costs,~~ as well as ~~gains~~acquisition-related ~~or losses on inventory purchase commitments~~costs. We further exclude expenses related to litigation settlements and executive severance from non-GAAP income from operations and non-GAAP net income. Finally, we have excluded the one-time financial impact of the Tax Act, release of a valuation allowance against U.S. deferred tax assets, as well as ~~expenses~~adjustments ~~related~~ to ~~stock~~deferred ~~warrants~~tax assets resulting from a non-cash write-off on an intra-entity transfer of intangible assets from non-GAAP net income and non-GAAP net income per share.

Management believes that it is useful to exclude non-cash stock-based compensation expense because the amount of such expense in any specific period may not directly correlate to the underlying performance of our business operations. We believe it is useful to exclude gains or losses on inventory purchase commitments because it is income or expense that arose from our commitment to purchase energy-related products from our contract manufacturing partner that we will not use due to our decision to discontinue our energy product line for utility customers. We have not recognized that type of income or expense in periods other than 2013 and 2012, and we believe that past and future periods are more comparable if we exclude that income or expense.

Table of Contents

We exclude the amortization of acquired intangible assets from non-GAAP measures. These amounts are inconsistent in amount and frequency and are significantly impacted by the timing and size of acquisitions. Providing a supplemental measure that excludes these charges allows management and investors to evaluate results “as-if” the acquired intangible assets had been developed internally rather than acquired. Although we exclude amortization of acquired intangible assets from non-GAAP measures, we believe that it is important for investors to understand that such intangible assets contribute to revenue generation. Amortization of intangible assets that relate to past acquisitions will recur in future periods until such intangible assets have been fully amortized. Future acquisitions may result in the amortization of additional intangible assets.

We have recently completed acquisitions which resulted in operating expenses that would not have otherwise been incurred. Management has provided supplementary non-GAAP financial measures, which exclude acquisition-related expense items resulting from acquisitions, to allow more accurate comparisons of the financial results to historical operations, forward-looking guidance and the financial results of less acquisitive peer companies. Management considers these types of costs and adjustments, to a great extent, to be unpredictable and dependent on a significant number of factors that are outside of our control. Furthermore, we do not consider these acquisition-related costs and adjustments to be related to the organic continuing operations of the acquired businesses and are generally not relevant to assessing or estimating the long-term performance of the acquired assets. In addition, the size, complexity and/or volume of past acquisitions, which often drives the magnitude of acquisition-related costs, may not be indicative of the size, complexity and/or volume of future acquisitions. By excluding acquisition-related costs and adjustments from our non-GAAP measures, management is better able to evaluate our ability to utilize its existing assets and estimate the long-term value that acquired assets will generate for us. We believe that providing a supplemental non-GAAP measure which excludes these items allows management and investors to consider the ongoing operations of the business both with, and without, such expenses.

These acquisition-related costs are included in the following categories: (i) professional service fees, recorded in operating expenses, which include third party costs related to the acquisition, and legal and other professional service fees associated with diligence, entity formation and corporate structuring, disputes and regulatory matters related to acquired entities, (ii) transition and integration costs, recorded in operating expenses, which include retention payments, transitional employee costs, earn-out payments treated as compensation expense, as well as the costs of integration-related services provided by third parties, and (iii) acquisition-related adjustments which include adjustments to acquisition-related items such as being required to record inventory at its fair value, resulting in a step-up in the inventory value, and having to reverse part of our valuation allowance in order to offset the deferred tax liability that was recorded based on differences between the book and tax basis of assets acquired and liabilities assumed. The step-up in inventory is recorded through cost of goods sold when the inventory is sold, resulting in a negative impact to our gross margin. Although these expenses are not recurring with respect to past acquisitions, we will generally incur these types of expenses in connection with any future acquisitions.

Furthermore, we believe it is useful to exclude expenses related to litigation settlements, ~~stock warrants,~~ and executive severance because of the variable and unpredictable nature of these expenses which are not indicative of past or future operating performance. We believe that past and future periods are more comparable if we exclude those expenses.

~~Our~~Finally, our non-GAAP results also exclude the one-time financial impact of the Tax Act, release of a valuation allowance against U.S. deferred tax assets, as well as adjustments to deferred tax assets resulting from a non-cash write-off on an intra-entity transfer of intangible assets. This is consistent with our practice of excluding large, one-time items in non-GAAP results.

We believe these adjustments provide useful comparative information to investors. Non-GAAP results are presented for supplemental informational purposes only for understanding our operating results. The non-GAAP results should not be considered a substitute for financial information presented in accordance with generally accepted accounting principles, and may be different from non-GAAP measures used by other companies. Our non-GAAP financial measures may not provide information that is directly comparable to that provided by other companies in our industry, as other companies in our industry may calculate non-GAAP financial results differently, particularly related to non-recurring, unusual items. We urge our investors to review the reconciliation of our non-GAAP financial measures to the comparable GAAP financial measures included below, and not to rely on any single financial measure to evaluate our business.

39The Non-GAAP data for the years ended December 31, 2017 and 2016 reflect an adjustment related to the adoption of ASC 606. The Non-GAAP data for the years ended December 31, 2015, 2014 and 2013 do not reflect the adoption of ASC 606.

Table of Contents

	Years Ended December 31,
	2017			2016			2015			2014			2013
	(in thousands, except percentages and per share data)
Reconciliation of Gross Margin to Non-GAAP Gross Margin:
Gross margin	$	124,495		$	103,679		$	81,534		$	76,357		$	64,657
Stock-based compensation expense in cost of revenue		251			171			174			105			63
Amortization of intangible assets in cost of revenue		3,164			3,052			1,392			491			319
Acquisition-related costs in cost of revenue		228			2,162			294			—			—
Cost of revenue—inventory purchase commitment		—			—			—			—			(380)
Non-GAAP gross margin	$	128,138		$	109,064		$	83,394		$	76,953		$	64,659
Revenue	$	244,725		$	208,802		$	163,179		$	148,800		$	128,511
Gross margin percentage		50.9	%		49.7	%		50.0	%		51.3	%		50.3	%
Non-GAAP gross margin percentage		52.4	%		52.2	%		51.1	%		51.7	%		50.3	%
Reconciliation of Income (Loss) From Operations to Non-GAAP Income (Loss) From Operations:
Income (loss) from operations	$	14,106		$	4,712		$	(821)		$	8,863		$	4,934
Stock-based compensation expense		12,105			8,370			7,034			5,341			3,760
Amortization of intangible assets		5,212			4,598			1,474			491			319
Acquisition-related costs		535			3,451			1,393			—			—
Cost of revenue—inventory purchase commitment		—			—			—			—			(380)
Litigation settlement		—			475			21			47			440
Executive severance		—			157			—			—			340
Non-GAAP income (loss) from operations	$	31,958		$	21,763		$	9,101		$	14,742		$	9,413
Revenue	$	244,725		$	208,802		$	163,179		$	148,800		$	128,511
Operating margin percentage		5.8	%		2.3	%		(0.5)	%		6.0	%		3.8	%
Non-GAAP operating margin percentage		13.1	%		10.4	%		5.6	%		9.9	%		7.3	%
Reconciliation of Net Income (Loss) to Non-GAAP Net Income (Loss):
Net income (loss)	$	15,979		$	12,954		$	(1,652)		$	8,156		$	3,503
Stock-based compensation expense		12,105			8,370			7,034			5,341			3,760
Amortization of intangible assets		5,212			4,598			1,474			491			319
Acquisition-related costs		(1,722)			(5,911)			1,393			—			—
Cost of revenue—inventory purchase commitment		—			—			—			—			(380)
Litigation settlement		—			475			21			47			440
Convertible preferred stock warrant		—			—			—			—			709
Executive severance		—			157			—			—			340
Impact of the Tax Act		(223)			—			—			—			—
Deferred income tax asset adjustment		767			—			—			—			—
Non-GAAP net income (loss)(1)	$	32,118		$	20,643		$	8,270		$	14,035		$	8,691
Reconciliation of Net Income (Loss) per Share to Non-GAAP Net Income (Loss) per Share:
Basic net income (loss) per share	$	0.64		$	0.55		$	(0.07)		$	0.34		$	0.33
Stock-based compensation expense		0.49			0.36			0.29			0.23			0.36
Amortization of intangible assets		0.21			0.20			0.06			0.02			0.03
Acquisition-related costs		(0.07)			(0.25)			0.06			—			—
Cost of revenue—inventory purchase commitment		—			—			—			—			(0.04)
Litigation settlement		—			0.02			—			—			0.04
Convertible preferred stock warrant		—			—			—			—			0.07
Executive severance		—			—			—			—			0.03
Impact of the Tax Act		(0.01)			—			—			—			—
Deferred income tax asset adjustment		0.03			—			—			—			—
Non-GAAP basic net income (loss) per share(1)	$	1.29		$	0.88		$	0.34		$	0.59		$	0.82
Diluted net income (loss) per share	$	0.60		$	0.53		$	(0.07)		$	0.32		$	0.16
Stock-based compensation expense		0.45			0.35			0.28			0.21			0.17
Amortization of intangible assets		0.19			0.19			0.06			0.02			0.01
Acquisition-related costs		(0.06)			(0.24)			0.06			—			—
Cost of revenue—inventory purchase commitment		—			—			—			—			(0.02)
Litigation settlement		—			0.02			—			—			0.02
Convertible preferred stock warrant		—			—			—			—			0.03
Executive severance		—			—			—			—			0.02
Impact of the Tax Act		(0.01)			—			—			—			—
Deferred income tax asset adjustment		0.03			—			—			—			—
Non-GAAP diluted net income (loss) per share(1)	$	1.20		$	0.85		$	0.33		$	0.55		$	0.39
Weighted-average number of shares:
Basic		24,803			23,402			24,121			23,685			10,609
Diluted		26,775			24,360			25,041			25,646			22,263
(1) Excludes the calculated effect of non-GAAP adjustments on income tax expense of $1.4 million for the year ended December 31, 2017.

Table of Contents

Consolidated Balance Sheet Data


	Years Ended December 31,
	2018			2017 As adjusted			2016 As adjusted			2015			2014
	(in thousands, except percentages and per share data)
Reconciliation of Gross Margin to Non-GAAP Gross Margin:
Gross margin	$	142,003		$	123,945		$	103,007		$	81,534		$	76,357
Stock-based compensation expense in cost of revenue		247			251			171			174			105
Amortization of intangible assets in cost of revenue		3,397			3,164			3,052			1,392			491
Acquisition-related costs in cost of revenue		—			228			2,162			294			—
Non-GAAP gross margin	$	145,647		$	127,588		$	108,392		$	83,394		$	76,953
Revenue	$	272,458		$	244,175		$	208,130		$	163,179		$	148,800
Gross margin percentage		52.1	%		50.8	%		49.5	%		50.0	%		51.3	%
Non-GAAP gross margin percentage		53.5	%		52.3	%		52.1	%		51.1	%		51.7	%
Reconciliation of Income (Loss) From Operations to Non-GAAP Income (Loss) From Operations:
Income (loss) from operations	$	21,165		$	13,556		$	4,040		$	(821)		$	8,863
Stock-based compensation expense		13,511			12,105			8,370			7,034			5,341
Amortization of intangible assets		5,464			5,212			4,598			1,474			491
Acquisition-related costs		366			535			3,451			1,393			—
Litigation settlement		—			—			475			21			47
Executive severance		—			—			157			—			—
Non-GAAP income (loss) from operations	$	40,506		$	31,408		$	21,091		$	9,101		$	14,742
Revenue	$	272,458		$	244,175		$	208,130		$	163,179		$	148,800
Operating margin percentage		7.8	%		5.6	%		1.9	%		(0.5)	%		6.0	%
Non-GAAP operating margin percentage		14.9	%		12.9	%		10.1	%		5.6	%		9.9	%
Reconciliation of Net Income (Loss) to Non-GAAP Net Income (Loss):
Net income (loss)	$	43,840		$	15,455		$	12,298		$	(1,652)		$	8,156
Stock-based compensation expense		13,511			12,105			8,370			7,034			5,341
Amortization of intangible assets		5,464			5,212			4,598			1,474			491
Acquisition-related costs		366			(1,722)			(5,911)			1,393			—
Litigation settlement		—			—			475			21			47
Executive severance		—			—			157			—			—
Release of valuation allowance		(23,435)			—			—			—			—
Impact of the Tax Act		—			(223)			—			—			—
Deferred income tax asset adjustment		—			767			—			—			—
Non-GAAP net income (loss)(1)	$	39,746		$	31,594		$	19,987		$	8,270		$	14,035
Reconciliation of Net Income (Loss) per Share to Non-GAAP Net Income (Loss) per Share:
Basic net income (loss) per share	$	1.67		$	0.62		$	0.53		$	(0.07)		$	0.34
Stock-based compensation expense		0.51			0.49			0.35			0.29			0.23
Amortization of intangible assets		0.21			0.21			0.20			0.06			0.02
Acquisition-related costs		0.01			(0.07)			(0.26)			0.06			—
Litigation settlement		—			—			0.02			—			—
Executive severance		—			—			0.01			—			—
Release of valuation allowance		(0.89)			—			—			—			—
Impact of the Tax Act		—			(0.01)			—			—			—
Deferred income tax asset adjustment		—			0.03			—			—			—
Non-GAAP basic net income (loss) per share(1)	$	1.51		$	1.27		$	0.85		$	0.34		$	0.59
Diluted net income (loss) per share	$	1.60		$	0.58		$	0.50		$	(0.07)		$	0.32
Stock-based compensation expense		0.49			0.45			0.34			0.28			0.21
Amortization of intangible assets		0.20			0.19			0.19			0.06			0.02
Acquisition-related costs		0.01			(0.06)			(0.24)			0.06			—
Litigation settlement		—			—			0.02			—			—
Executive severance		—			—			0.01			—			—
Release of valuation allowance		(0.85)			—			—			—			—
Impact of the Tax Act		—			(0.01)			—			—			—
Deferred income tax asset adjustment		—			0.03			—			—			—
Non-GAAP diluted net income (loss) per share(1)	$	1.45		$	1.18		$	0.82		$	0.33		$	0.55
Weighted-average number of shares:
Basic		26,235			24,803			23,402			24,121			23,685
Diluted		27,484			26,775			24,360			25,041			25,646

(1) Excludes the calculated effect of non-GAAP adjustments on income tax expense of $27.9 million for the year ended December 31, 2018.

The following table sets forth our selected consolidated balance sheet data as of the dates presented:

	December 31,
	2017		2016		2015		2014		2013
	(In thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	29,761	$	34,813	$	29,530	$	29,187	$	84,546
Investments, net(1)		56,254		27,128		51,477		68,032		—
Property and equipment, net		7,337		6,463		6,584		5,089		3,943
Working capital, excluding deferred revenue		109,067		86,728		88,411		98,782		95,422
Total assets		214,455		165,058		141,863		142,030		122,686
Long-term debt, including current portion		—		—		913		1,828		2,966
Total stockholders’ equity		174,773		136,882		115,445		118,302		98,474
(1) Includes accrued investment balances not included in the investments line items on the consolidated balance sheet.

Table of Contents

Consolidated Balance Sheet Data

The following table sets forth our selected consolidated balance sheet data as of the dates presented. The balance sheet data for the years ended December 31, 2017 and 2016 reflects an adjustment related to the adoption of ASC 606. The balance sheet data for the years ended December 31, 2015, 2014 and 2013 do not reflect the adoption of ASC 606.


	December 31,
	2018		2017 As adjusted		2016 As adjusted		2015		2014
	(In thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	40,395	$	29,761	$	34,813	$	29,530	$	29,187
Investments, net(1)		52,932		56,254		27,128		51,477		68,032
Property and equipment, net		9,663		7,337		6,463		6,584		5,089
Working capital, excluding deferred revenue		139,893		109,067		89,113		88,411		98,782
Total assets		252,548		214,497		165,074		141,863		142,030
Long-term debt, including current portion		—		—		—		913		1,828
Total stockholders’ equity		206,347		169,528		132,161		115,445		118,302
(1) Includes accrued investment balances not included in the investments line items on the consolidated balance sheet.

Table of Contents

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the various sections in our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) in conjunction with our consolidated financial statements and the notes thereto included elsewhere in this Annual Report on Form 10-K. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in the “Cautionary Note Regarding Forward-Looking Statements” and the “Risk Factors” section.

Our MD&A is provided in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our operations, financial condition and cash flows. Our MD&A is organized as follows:

· Overview. Discussion of our business and overall analysis of financial and other highlights affecting our business in order to provide context for the remainder of our MD&A.

Factors and Trends Affecting our Performance. A summary of certain market factors and trends that we believe are important to our business which we must successfully address in order to continue to grow our business.

Key Operating and Financial Metrics. Key operating and financial metrics that we use to evaluate and manage our business.

· Results of Operations. An analysis of our financial results comparing ~~2017~~2018 to ~~2016~~2017 and comparing ~~2016~~2017 to ~~2015~~2016.

· Quarterly Results of Operations and Other Data. An analysis of our quarterly results of operations for each of the quarters in the two-year period ended December 31, ~~2017~~2018.

Liquidity and Capital Resources. An analysis of changes in our balance sheets and cash flows, and discussion of our financial condition and potential sources of liquidity.

· Contractual Obligations and Off-Balance Sheet Arrangements. Overview of contractual obligations, contingent liabilities, commitments and off-balance sheet arrangements outstanding as of December 31, ~~2017~~2018, including expected payment schedule.

Critical Accounting Estimates. Accounting estimates that we believe are most important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts.

Overview

~~Control4~~We isare a leading provider of professionally-installed smart home and business solutions that are designed to personalize and enhance how consumers engage with an ever-changing connected world. Our entertainment, smart lighting, comfort and convenience, safety and security, and networking solutions unlock the potential of connected devices, making entertainment systems easier to use and more accessible, homes and businesses more comfortable and energy efficient, and individuals more connected and secure. Our premium smart home and small business solutions provide consumers with the ability to integrate audio, video, lighting, temperature, security, communications, network management and other functionalities into a unified automation solution, customized to match their lifestyles and business needs. Our advanced software, delivered through our controller ~~products, cloud services~~ and user-interface products together with various cloud services, power this customized experience, enabling cohesive interoperability with thousands of connected Control4 and third-party devices.

Consumers purchase our smart solutions from our worldwide network of certified independent dealers, ~~regional~~distributors, and ~~national~~ retailers ~~and distributors~~. These dealers, ~~retailers~~distributors and ~~distributors~~retailers design and install customized solutions to fit the specific needs of each consumer, whether it is a one-room home theater set-up or a whole-home automation system that features the integration of audio, video, lighting, temperature, security, network management, and communications devices. Our products are installed in both new and existing residences, multi-dwelling units and small commercial facilities. We refer to revenue from sales of our products through these dealers, ~~retailers~~distributors and ~~distributors~~retailers as our Core revenue (“Core revenue”). In addition, a portion of our revenue is attributable to sales in the hospitality industry, primarily related to products installed in hotels, which is excluded from our calculation of Core revenue as well as certain specialty display products and associated installation sales in Australia. Our revenue from sales to hotels is generally project-based and has been significant in some periods and insignificant in other

Table of Contents

periods and insignificant in other periods. In the future, we expect revenue from hospitality to continue to be project-based and uneven from period to period. During the year ended December 31, 2017, over 4,220 active direct dealers were authorized to sell and install the full Control4 line of products in the United States, Canada, the United Kingdom, Australia, China, Germany and 50 other countries, and 33 distributors were authorized to cover an additional 45 countries where we do not have direct dealer relationships. These distributors sell our solutions through dealers and provide warehousing, training, technical support, and billing for dealers in each of those countries. We have an additional 1,070 active dealers and 17 distributors that are currently authorized to sell only our Pakedge and Triad line of products.

We derive the majority of our revenue from the sale of products that contain our proprietary software, which functions as the operating system of the home. We also generate revenue from the sale of annual subscriptions to our 4Sight subscription service, which allows consumers to personalize their automation system through simple homeowner directed programming, referred to as “When >> Then” automation; remotely access, backup, and control their smart home solutions from their mobile devices; receive e-mail and “push notification” alerts regarding activities in their home; and enable Amazon Alexa voice services.

We were founded in 2003 and began shipping our products and generating revenue in 2005. Our revenue growth rates for the last five complete calendar years are shown in the following table (dollars in millions):

	For the Years Ended December 31,
	2017			2016			2015			2014			2013
Core revenue	$	239.3		$	203.9		$	160.7		$	144.7		$	126.4
Core revenue growth over prior year		17	%		27	%		11	%		14	%		20	%
Other revenue	$	5.4		$	4.9		$	2.5		$	4.1		$	2.1
Other revenue changes over prior year		10	%		96	%		-39	%		95	%		-46	%
Total revenue	$	244.7		$	208.8		$	163.2		$	148.8		$	128.5
Total revenue growth over prior year		17	%		28	%		10	%		16	%		17	%

Over the past five years, we have experienced double-digit annual growth in Core revenue. Our Core revenue growth during that period has been the result of a combination of the net addition of new independent dealers and distributors to our sales channels, an increase in revenue from our existing network of independent dealers and distributors, and the addition of new products developed internally and acquired through business combinations. We believe our ability to grow our core sales channel has been enhanced through product innovation, expansion of our product offerings and helping our independent dealers and distributors grow their business.

Recent Developments

Some recent developments that we believe may enhance our offerings and help drive growth include, but are not limited to, the following:

· Introduced our new CA-1 controller, an entry level controller for projects that only need lighting, temperature control, and security integration, and do not require additional entertainment features found in our EA series of controllers.

· Launched an extensive line of Triad high-resolution multi-room audio products featuring a single-zone streaming amplifier, a power amplifier, and two audio matrix switches, designed to deliver high-resolution audio in every corner of the home, from the source to the listener’s ears;

· Released OS 2.10, featuring expanded music service integrations with iHeartRadio, Sirius XM, and Spotify supported by our EA Controllers;

· Released an updated version of 4Sight which includes a new homeowner customization functionality called “When >> Then” automation;

· Launched the Pakedge WR-1 wireless router with BakPak Lite, a high-performance integrated network router and wireless access point with built-in cloud-based network management. Designed for small homes and simpler smart home installations, this wireless router provides reliable, affordable wired and wireless networking;

Table of Contents

·periods. ~~Launched~~In the ~~Pakedge~~future, ~~Certified~~we ~~Network~~expect ~~Administrator~~revenue ~~(“PCNA”)~~from ~~program.~~hospitality ~~PCNA~~to iscontinue ato ~~training~~be ~~experience~~project-based ~~that~~and ~~employs~~uneven afrom ~~unique~~period ~~blend~~to ofperiod. ~~comprehensive~~During ~~online~~the ~~coursework~~year ~~with~~ended ~~hands-on~~December ~~practical~~31, ~~learning~~2018, ~~using~~over ~~Pakedge~~4,500 ~~networking~~active ~~gear~~direct todealers ~~provide~~were ~~dealers~~authorized to sell and ~~technicians~~install the ~~networking~~full ~~knowledge~~Control4 ~~they~~line ~~need~~of products in the United States, Australia, China, Germany, the United Kingdom, and 57 other countries, and 31 distributors were authorized to ~~design~~cover an additional 43 countries where we do not have direct dealer relationships. These distributors sell our solutions through dealers and provide warehousing, ~~install~~training, technical support, and ~~manage~~billing ~~wired~~for dealers in each of those countries. We have approximately 980 additional active dealers and ~~wireless~~12 IPdistributors ~~networks;~~that are currently authorized to sell only our Pakedge and Triad product lines.

· We ~~Launched~~derive the ~~new~~majority ~~Triad~~of ~~Garden~~our ~~Array~~revenue ~~outdoor~~from ~~speakers,~~the asale ~~family~~ of ~~all-weather~~products that contain our proprietary software, ~~landscape~~which ~~speakers~~functions ~~that~~as ~~include~~the aoperating ~~premium~~system ~~satellite~~of ~~speaker~~the home or business and ~~subwoofer~~other ~~designed~~related toancillary beproducts ~~placed~~used ~~throughout~~in ~~flower~~automation ~~beds~~projects. orWe ~~around~~also generate revenue from the ~~yard~~sale of annual subscriptions to ~~blanket~~our ~~outdoor~~4Sight ~~spaces~~subscription ~~with~~service. ~~rich~~Our 4Sight services give homeowners the ability to, ~~beautiful~~among other things, (1) remotely monitor and control their smart home solutions from their mobile devices; (2) communicate through our audio/video application, Intercom Anywhere; and (3) enable voice recognition services.

· We ~~Launched~~were ~~the~~founded ~~new~~in ~~Pakedge~~2003 ~~PowerPak~~and ~~family~~began ofshipping ~~power~~our ~~control~~products ~~devices~~and ~~that~~generating ~~provide~~revenue ~~centralized~~in ~~power~~2005. ~~control~~Our ~~and~~revenue ~~management~~growth ~~with~~rates ~~surge protection~~ for ~~all~~the ~~equipment~~last infive acomplete ~~connected~~calendar ~~home.~~years ~~Dealers~~are ~~can~~shown ~~use~~in the ~~BakPak~~following ~~enabled~~table ~~PowerPak power distribution units~~ (~~“PDUs”)~~dollars ~~to monitor and manage their entire customer base~~ in amillions, ~~single~~except ~~interface; and,~~percentages):

· Integrated the latest release of our BakPak management software on the Pakedge RK-1 Router enabling our independent dealer network to offer more homeowners the benefits of a monitored, intelligent home network.


	For the Years Ended December 31,
	2018			2017 * As adjusted			2016 * As adjusted			2015			2014
Core revenue	$	267.7		$	238.8		$	203.2		$	160.7		$	144.7
Core revenue growth over prior year		12	%		18	%		26	%		11	%		14	%

Other revenue	$	4.8		$	5.4		$	4.9		$	2.5		$	4.1
Other revenue changes over prior year		(11)	%		10	%		96	%		(39)	%		95	%

Total revenue	$	272.5		$	244.2		$	208.1		$	163.2		$	148.8
Total revenue growth over prior year		12	%		17	%		28	%		10	%		16	%

~~While~~*The ~~our~~revenue ~~historical~~data ~~revenue~~for ~~growth~~the ~~has~~years ~~been~~ended ~~primarily~~December ~~organic~~31, we2017 ~~have~~and ~~completed~~2016 ~~several~~reflect ~~recent~~an ~~acquisitions~~adjustment ~~that~~related weto ~~believe~~the ~~enhance~~adoption ~~our~~of ~~product~~ASC ~~offerings~~606. ~~and~~The ~~position~~revenue usdata for ~~continued~~the ~~growth~~years inended ~~the~~December ~~future.~~31, ~~Recent~~2015 ~~acquisitions~~and of2014 ~~technology~~do ~~and~~not ~~distribution-related~~reflect ~~business~~the ~~are~~adoption asof ~~follows:~~ASC 606.

· Over Inthe ~~December~~past ~~2017~~five years, we ~~acquired~~have ~~the~~experienced ~~intellectual~~double-digit ~~property~~annual ~~and~~growth ~~key~~in ~~operating~~Core ~~assets~~revenue. ofOur ~~ihiji,~~Core revenue growth during that period has been the result of a ~~leading~~combination ~~provider~~of the net addition of ~~remote~~new ~~management~~independent ~~services~~dealers ~~for~~and ~~technical~~distributors ~~integrators~~to ~~servicing~~our ~~connected~~sales ~~home~~channels, ~~customers.~~an Byincrease ~~combining~~in ~~two~~the ~~industry-leading~~number of projects performed by our existing network ~~and~~of ~~device~~independent ~~management~~dealers ~~solutions~~and distributors, ~~BakPak~~and ~~from~~the ~~Control4~~addition of new products developed internally and ~~invision~~acquired ~~from~~through ~~ihiji,~~business ~~into~~combinations. ~~one~~We ~~unified~~believe ~~service~~our ~~platform,~~ability ~~Control4~~to ~~will~~grow ~~provide~~our ~~thousands~~core ofsales ~~professional~~channel ~~integrators~~has ~~with~~been ~~powerful~~enhanced ~~device~~through ~~monitoring~~product innovation, expansion of our product offerings and ~~management~~helping ~~capability~~our toindependent ~~efficiently~~dealers and ~~proactively~~distributors ~~support~~grow their ~~connected-home customers~~business. Some recent developments that we believe may enhance our offerings and help drive growth include, but are not limited to, the following:

· InExpanded ~~February~~our ~~2017,~~KNX wesolution ~~acquired~~to ~~Triad,~~natively asupport ~~leader~~over in300 ~~advanced~~KNX ~~audio~~products ~~technology~~including ~~with~~new ~~best-in-class~~keypads, ~~customizable~~lighting, ~~speaker~~HVAC, ~~solutions~~and shades. ~~Entertainment~~This issupport ~~integral~~for toKNX ~~the~~enables ~~connected~~interoperability ~~home~~with ~~and~~ the ~~acquisition~~entire ofControl4 ~~Triad~~ecosystem, ~~brings~~including ~~premium-acoustics~~support ~~experience~~for ~~and~~Amazon ~~innovation~~Alexa tovoice ~~Control4~~control, ~~enhancing~~where ~~our~~available, ~~entertainment offering~~ and ~~enabling~~nearly ~~the~~13,000 ~~future~~other ~~development~~connected ~~of new integrated-audio experiences~~products;

· InReleased ~~April~~OS ~~2016~~2.10.4, wefeaturing ~~transitioned~~expanded ~~from~~music astreaming ~~two-tier~~service ~~distribution~~integration ~~model~~with toAmazon ~~direct-to-dealer~~Music inand ~~Australia,~~Deezer ~~and~~HiFi as ~~part~~well ofas ~~this~~added ~~process,~~hands-on ~~acquired~~personalization ~~customer~~choices ~~lists~~for ~~and~~homeowners ~~inventory~~with ofour ~~the~~“When ~~former~~>> ~~distributor;~~Then” ~~and~~automation;

· InReleased ~~January~~Intercom ~~2016~~Anywhere, ~~we acquired Pakedge,~~ a ~~developer~~modern ~~and~~video ~~manufacturer~~doorbell ofenabling ~~networking~~homeowners ~~products,~~to ~~power~~see ~~distribution~~ and ~~management~~communicate ~~solutions,~~with asvisitors ~~well~~at asthe ~~cloud~~front ~~network-managed~~door, ~~services~~whether ~~for~~they ~~both~~are ~~wireless and wired networking solutions in the connected~~ home ~~and~~or ~~business. The Pakedge acquisition contributed a deep networking expertise~~away, ~~innovative~~in ~~technologies,~~addition ~~and~~to aallowing ~~sophisticated~~the ~~suite~~homeowner ofto ~~networking~~see ~~products~~who ~~and~~is ~~rich~~at ~~software~~the ~~capability~~door prior to ~~our business.~~answering;

~~Adoption~~· byUnveiled ~~the~~over 170 Control4 ~~dealer~~Certified ~~network~~Showrooms ofbuilt ~~Triad~~by ~~products~~Control4 ~~continues~~authorized todealers ~~steadily~~at ~~expand~~their ~~with~~locations 2across the United States,~~027~~ ~~dealers~~Australia, orCanada, ~~38%~~China, ofand ~~our~~the ~~active~~United ~~dealers~~Kingdom, ~~ordering~~revolutionizing ~~Triad~~how ~~during~~people ~~2017~~learn about, experience, and interact with Control4 smart home solutions. The Control4 Certified Showroom program is designed to direct homeowners, architects, and designers in the market for smart home solutions to a location where they can experience Control4 solutions in a showroom environment; and

We continue to invest in and grow the Pakedge networking product category. A total of 3,215 dealers, or 61% of our active dealers, have purchased Pakedge networking products during 2017. As mentioned above, adding to our industry leading networking product lineup, we recently announced our new WR-1 wireless router with an MSRP of $300, which broadens the selling opportunity for our dealers. We have successfully integrated each of our recent acquisitions and our channel is actively selling these new products, which enhance our core solution categories and help sustain our target organic growth rate.

Historically, we have experienced seasonal variations in our revenue as a result of holiday-related factors that are common in our industry. Our revenue is generally highest in the fourth quarter due to consumers’ desires to complete their home installations prior to the holiday season. We generally see decreased sales in the first quarter due to seasonal purchase tendencies of consumers as well as the impact of winter weather on new construction and travel in certain geographies. In addition, our year-over-year revenue growth on a quarterly basis is not always linear for a variety of reasons including: the timing of new product releases, the use of marketing programs to accelerate intra-quarter sales of certain products or product families, the impact of foreign currency fluctuations, and the impact of general regional economic conditions on consumer

Table of Contents

~~buying~~· ~~decisions~~Introduced ~~and~~our ~~harsh~~new ~~weather~~CA-1 ~~that~~controller, ~~delayed~~an orentry ~~canceled~~level ~~building~~controller for projects. Wethat ~~generally~~only ~~expect~~include ~~these~~lighting, ~~seasonal~~temperature control, and ~~other~~security ~~trends~~integration, toand ~~continue~~do innot ~~the~~require ~~future,~~additional ~~which~~entertainment ~~may~~features ~~cause~~found ~~quarterly fluctuations~~ in our ~~results~~EA series of ~~operations and certain financial metrics~~controllers.

While our historical revenue growth has been primarily organic, we have completed several acquisitions that we believe enhance our product offerings and position us for continued growth in the future. Recent acquisitions that have impacted our growth include the acquisition of Pakedge in 2016 and Triad in 2017.

Factors and Trends Affecting Our Performance

A number of industry trends have facilitated our growth over the past several years, including the proliferation of connected devices and the constant growth of network-enabled homes and businesses. From smartphones to smart watches to smart cars, technology is transforming nearly every aspect of our lives, streamlining daily routines and providing quick, easy access to the capabilities and content we want most. Not only are new technologies providing convenience on-the-go, but they are becoming increasingly accessible and interconnected. Voice services are a recent example of an emerging technology in our connected world, and our integration with Amazon Alexa helps keep us at the forefront of our industry in our adoption of voice -activated solutions. We remain committed to embracing emerging technologies through our open platform and broad ecosystem.

Our open platform makes it easy for a broad community of original equipment manufacturer partners to participate in our smart home ecosystem, which includes ~~over~~approximately 1113,000 drivers and ~~more~~approximately ~~than 2~~5,900 ~~SDDP-enabled~~Simple ~~products.~~Device ~~For~~Discovery ~~example,~~Protocol LGenabled ~~recently announced that its new lines of OLED and Super UHD TVs would feature~~ (“SDDP~~, and Samsung announced the incorporation of SDDP software into its new 4K television line~~”-upenabled) ~~and Blu-ray Player~~ products. We believe that ~~these and other~~ companies are increasingly recognizing the value of including SDDP with their new releases to simplify integration of their products into Control4 installations. Our broad ecosystem, which includes audio, video, lighting, temperature, network, security and communication device categories, gives consumers flexibility to integrate nearly any connectable device into their smart home. In addition, our partners are constantly contributing new device integrations. As such, our dynamic ecosystem remains current with the latest product innovations and allows our smart home platform to grow alongside emerging technologies to meet our consumers’ changing needs and preferences. We believe that our open platform and the resulting ecosystem is a key competitive advantage that will continue to facilitate our growth.

Our products leverage both wired and wireless technologies and are designed to be installed in both new construction and existing homes. We expect that future increases in both new home construction and existing home renovations will have a positive impact on our revenue. In new home construction, we continue to engage builders to introduce entry- to mid-level Control4 systems as a standard feature in new home projects, and we believe that the release of our new CA-1 controller, at the lowest price point of any Control4 controller, will help with adoption of ~~control~~our solutions in these types of projects. We further believe home automation is increasingly becoming a higher priority for home buyers, and this is one of the reasons for our investment in national and regional builder programs.

We believe that the growth of our business and our future success are dependent upon many factors, including the rates at which consumers adopt our products and services, our commitment to growing the awareness of our brands, our ability to optimize and expand our dealer and distributor network, our ability to expand internationally, our ability to meet competitive challenges, and our ability to respond to worldwide economic events. While each of these areas presents significant opportunities for us, they also pose important challenges that we must successfully address to sustain or expand the growth of our business and improve our results of operations. These challenges include:

· Increasing Adoption Rates of Our Products and Services. We are focused on increasing adoption rates of our products and services through enhancements to our software platform and product offerings. We intend to accomplish these enhancements through both continued investments in research and development activities and acquisitions of complementary businesses and technologies.

· Growing Our Leadership Position in the Industry. We are committed to growing awareness of the Control4, Pakedge, and Triad brands among our dealers, distributors and partners. We believe that our investments in creating brand awareness in the industry have contributed to dealer recruitment, product adoption, and revenue growth. We are proud of the many awards we received from various industry groups and dealer consortiums, formally recognizing our commitment to excellence. Our recent awards include:

o Three Techhome Mark of Excellence Awards at the Consumer Electronics Show in January 2018: 1) Best Audio Amplification Product of the Year for Control4’s new Triad One Streaming Amplifier, 2) Best Automation Device of the Year for Control4’s new OS 2.10 with “When >> Then” Then Personalization, and 3) Best Education or Support Program of the Year of Control4’s new Pakedge Certified Network Administrator Online Training Curriculum;

Table of Contents

o· ~~Two~~Increasing ~~“Best~~Adoption Rates of ~~Show”~~Our ~~Awards~~Products atand ~~the~~Services. ~~CEDIA~~We ~~Expo~~are ~~tradeshow~~focused inon ~~2017~~increasing ~~for~~adoption ~~Control4~~rates ~~“When~~of >>our ~~Then”~~products ~~automation~~and services through enhancements to our software platform and ~~the~~product ~~Pakedge~~offerings. ~~WR-1~~We ~~Wireless~~intend ~~Router~~to +accomplish ~~BakPak~~these ~~Lite;~~enhancements through both continued investments in research and development activities and acquisitions of complementary businesses and technologies.

o· AnGrowing ~~EXC!TE~~Our ~~Award~~Leadership atPosition in the ~~CEDIA~~Industry. ~~Expo~~We ~~tradeshow~~are incommitted ~~2017~~to ~~for~~growing ~~our~~awareness of the Control4, Pakedge, and Triad ~~Designer~~brands ~~Series~~among ~~Speakers~~our dealers, distributors and partners. We believe that our investments in creating brand awareness in the industry have contributed to dealer recruitment, product adoption, and revenue growth. We are proud of the many awards we received from various industry groups and dealer consortiums, formally recognizing our commitment to excellence. For example, Control4 was named the top home automation provider in seven of the 2018 CE Pro Brand Analysis categories. Notably, Control4 was named the Brand Leader in Whole-House Automation for the fourth consecutive year, and Pakedge ~~PowerPak~~was ~~PDU;~~named the Brand Leader for Home Networks for the sixth year in a row.

o· AAccelerating ~~BEST~~and ~~Award~~Enhancing Consumer Lead Generation. We remain focused on generating and pursuing leads received from CEour ~~Pro~~marketing efforts. We are continuing to invest in new online tools and inside sales representatives to qualify inbound inquiries and direct them to qualified independent dealers. To date, aour ~~leading~~enhanced ~~trade~~lead ~~magazine~~generation ~~for~~strategies ~~technology~~continue ~~professionals~~to increase consultations, atbids ~~CEDIA~~and ~~2017~~project ~~for~~installations. Through the continual optimization of our ~~Triad~~marketing ~~Designer~~efforts ~~Series~~and ~~Speakers~~investment, we believe we can improve lead conversion rates and increase the amount of revenue per lead.;

o· ~~Top~~Optimizing ~~Whole-Home~~and ~~Automation~~Expanding ~~brand~~Our ~~for~~North ~~Control4~~America ~~and~~Dealer ~~top~~Network. ~~networking~~We ~~brand~~intend ~~for~~to ~~Pakedge~~continue byto optimize the ~~“2017~~performance CEof ~~Pro~~and ~~100~~expand ~~Brand~~our ~~Analysis”~~network ~~report.~~of ~~This~~dealers isin ~~the~~North ~~third~~America ~~year~~to inensure athat ~~row~~we ~~that~~have ~~Control4~~geographic ~~was~~coverage ~~recognized~~and astechnical ~~the~~expertise ~~top~~to ~~Whole-Home~~address ~~Automation~~our ~~brand~~existing markets and ~~the~~new ~~fifth~~markets ~~year~~into inwhich awe ~~row~~plan ~~that~~to ~~Pakedge~~expand. ~~has~~We ~~been~~continue ~~named~~to ~~the~~work ~~top~~with ~~brand~~all ~~for~~appropriately qualified dealers to explore our home control, networking, and audio solutions, and we continue to cross-train and cross-certify dealers in accordance with our existing standards of technical proficiency and business practices.

o· ~~2017~~Expanding ~~Custom~~our ~~Integration~~International ~~Vendor~~Dealer and Distributor Network. We believe that our future growth will depend in part on our ability to expand our dealer and distributor network outside of North America, to adapt our products and services to foreign markets, and to increase awareness of our brands internationally. We continue to add field sales and service personnel to assist in the ~~Year~~optimization byof ~~ProSource~~our ~~Buying~~international ~~Group~~channels. ~~for~~We have adopted a direct-to-dealer model in specific international regions, namely in Australia, China, Germany, Ireland, New Zealand, Switzerland, and the ~~third~~United ~~consecutive~~Kingdom, ~~year~~and we will continue to evaluate opportunities in other countries.

· ~~Accelerating~~Managing ~~and~~Competition. ~~Enhancing~~The ~~Consumer~~market ~~Lead~~for ~~Generation.~~home Weautomation ~~determined~~is ~~that~~fragmented, ~~there~~highly iscompetitive anand ~~opportunity~~continually ~~for~~evolving. usIn addition to ~~play~~competing awith ~~more~~traditional ~~active~~players ~~role~~ in ~~generating~~the luxury segment of the home automation market, including Crestron, Elan, and ~~following~~Savant, upa onnumber ~~leads~~of ~~received~~large ~~from~~technology ~~our~~companies ~~marketing~~such ~~efforts.~~as ~~Therefore~~Amazon, weApple, ~~are~~Google, ~~continuing~~and toSamsung ~~invest~~offer indevice ~~inside~~control ~~sales~~capabilities ~~representatives~~within tosome ~~qualify~~of ~~inbound~~their ~~inquiries~~products, applications and ~~direct~~services, ~~them~~and are engaged in ongoing efforts to ~~qualified~~address ~~independent~~the ~~dealers~~broader home automation market. ~~Our~~In ~~enhanced~~addition, ~~lead~~managed ~~generation~~service ~~strategies~~companies ~~have~~such ~~increased~~as ~~consultations~~ADT, ~~bids~~Alarm.com, Comcast, and ~~project~~Vivint, ~~installations.~~have ~~Through~~broadened ~~the~~their ~~continual~~service ~~optimization~~offerings to include control of ~~our~~devices ~~marketing~~such ~~efforts,~~as ~~coupled~~door ~~with~~locks, ~~our~~lights, ~~new~~and ~~inside~~cameras. ~~resources~~Our ability to ~~qualify~~compete ~~inbound~~in ~~leads,~~the wegrowing ~~believe~~home weautomation ~~can~~market ~~improve~~over ~~lead~~the ~~conversion~~next ~~rates~~several ~~and~~years ~~increase~~will ~~the~~be ~~amount~~a ofkey ~~revenue~~factor ~~per~~in ~~lead~~our ability to continue to grow our business and meet or exceed our future expectations.

· Optimizing and Expanding Our North America Dealer Network. We intend to continue to optimize the performance of and expand our network of dealers in North America to ensure that we have geographic coverage and technical expertise to address our existing markets and new markets into which we plan to expand. We continue to work with all appropriately qualified dealers to explore home control, networking products, and speaker lines, and we continue to cross-train and cross-certify dealers in accordance with our existing standards of technical proficiency and business practices.

· Expanding our International Dealer and Distributor Network. We believe that our future growth will depend in part on our ability to expand our dealer and distributor network outside of North America, to adapt our products and services to foreign markets, and to increase awareness of our brands internationally. We continue to add field sales and service personnel to assist in the optimization of our international channels. We have transitioned to a direct-to-dealer model in specific international regions, namely in the United Kingdom, China, Germany and Australia, and we will continue to evaluate opportunities in other countries. Furthermore, we recently opened international training centers in Germany and Australia to help support the transition to a direct-to-dealer model.

· Managing Competition. The market for home automation is fragmented, highly competitive and continually evolving. In addition to competing with traditional players in the luxury segment of the home automation market, including Crestron, Elan, and Savant, a number of large technology companies such as Amazon, Apple, Google, and Samsung offer device control capabilities within some of their own products, applications and services, and are engaged in ongoing efforts to address the broader home automation market. In addition, managed service companies such as ADT, Alarm.com, Comcast, and Vivint, have broadened their service offerings to include control of devices such as door locks, lights, and cameras. Our ability to compete in the growing home automation market over the next several years will be a key factor in our ability to continue to grow our business and meet or exceed our future expectations.

Table of Contents

Key Operating and Financial Metrics

We use the following key operating and financial metrics to evaluate and manage our business.

North America Direct Dealers(1)

	Years Ended
	December 31,
	2017		2016		2015
	2018		2017		2016
Authorized dealers at the beginning of the period	23,~~994~~174		2,~~787~~994		2,~~676~~787
Additions	~~308~~331		~~371~~308		~~350~~371
Terminations	(~~128~~103)		(~~164~~128)		(~~239~~164)
Authorized dealers at the end of the period	3,~~174~~402		23,~~994~~174		2,~~787~~994
Number of active dealers(2)	3,~~057~~264		23,~~913~~057		2,~~748~~913
Active dealers as a % of authorized dealers(2)	96	%	9796	%	9997	%

International Direct Dealers(1)

	Years Ended
	December 31,
	2017		2016		2015
	2018		2017		2016
Authorized dealers at the beginning of the period	1,~~147~~315		~~901~~1,147		~~787~~901
Additions(3)	~~235~~232		~~319~~235		~~227~~319
Terminations	(6768)		(7367)		(~~113~~73)
Authorized dealers at the end of the period	1,~~315~~479		1,~~147~~315		~~901~~1,147
Number of active dealers(2)	1,~~169~~238		1,~~050~~169		~~816~~1,050
Active dealers as a % of authorized dealers(2)	8984	%	9289	%	9192	%

	Years Ended
	December 31,
	2017		2016		2015
	2018		2017		2016
Number of controllers sold	~~104~~114,~~320~~311		104,~~225~~320		73104,~~207~~225
Core revenue growth	1712	%	2718	%	1126	%
International Core revenue as a percentage of total revenue	2122	%	2021	%	2320	%

(1) These dealer figures only include dealers authorized to sell and install the full Control4 line of products and exclude the ~~1,070~~980 dealers that are currently authorized to sell only the Pakedge and Triad line of products.

(2)

An “active dealer” is an authorized dealer that has placed an order with us in the trailing 12-month period.

(3)

The figures for year ended December 31, 2017, include 100 dealers that were acquired as part of the direct-to-dealer transition in Australia.

Number of North America and Direct International Dealers

Because our dealers promote, sell, install and support our products, a broader dealer network allows us to reach more potential consumers across more geographic regions. We expect our dealer network to continue to grow, both in North America and internationally. While we have historically focused on dealers affiliated with CEDIA, weour ~~believe~~sales ~~there~~team isfocus anincludes ~~opportunity~~adding tonew ~~establish relationships with~~ dealers outside of CEDIA, including non-traditional A/V dealers, electrical contractors, and security system installers.

Strengthening our worldwide dealer channel through business and installation tools, education programs, and new dealer recruitment also remains an ongoing priority. ~~Much~~ ~~of our focus in 2017 has been on the successful introduction of new products to our channel, including both the Triad and Pakedge brands.~~ Our sales team will focus over the next few quarters on adding more new dealers, both traditional A/V dealers as well as dealers who historically have focused on IT, security, electrical, or HVAC offerings. Our goal is to continuously increase our dealers’ productivity and growth. Enabling our dealers to increase productivity will ultimately drive our revenue growth.

In conjunction with the broad availability of our newest generation products and software, we periodically review each of our current dealers with regard to their ability to successfully market, sell and install our current solutions. Part of developing a productive, capable dealer network, requires us to regularly review individual dealer performance and as

Table of Contents

In conjunction with the broad availability of our newest generation products and software, we intend to more comprehensively review each of our current dealers with regard to their ability to successfully market, sell and install our current solutions. Part of developing a productive, capable dealer network, requires us to regularly review individual dealer performance and as necessary, terminate dealer licenses where volume, technical training and performance requirements are not fulfilled. We view this as a healthy part of growing our dealer channel worldwide.

As a result of our traditional efforts to expand our channel, the number of active international dealers increased 116% and 2911% for the years ended December 31, ~~2017~~2018 and ~~2016~~2017, respectively, compared to an increase of 57% and 65% respectively, in the number of active North American direct dealers during the same periods. Generally, the growth percentage internationally is higher because our presence in these markets is less mature and our base of dealers is much lower than the North American market. Much of this growth in our international dealer network is attributed to new dealer additions in China, Germany and Australia. While not reflected in our metrics reported as of December 31, 2018, in early 2019, we are in the process of adding an estimated 120 dealers in Ireland, New Zealand, and Switzerland where we have recently announced our transitions to a direct-to-dealer model. We plan to continue to monitor markets that are currently served by a single distributor and, when business conditions are favorable, we may decide to establish direct relationships with selected dealers in these regions, which we expect would further increase our number of direct international dealers.

While we believe that we will continue to have significant international opportunities, it is difficult to anticipate the exact timing and amount of growth, particularly in new and emerging markets. Such challenges may cause our growth rate to be slower than anticipated, offsetting our efforts to expand into these emerging geographies. Examples of challenges we must address in order to continue our international expansion include divergent regional and local economic and political trends in Latin America, particularly relating to new home construction and strengthening of the U.S. dollar versus certain local currencies, and the June 2016 vote in the UK to exit the European Union. In response to a weakening Canadian dollar, starting in February 2016, we announced to our dealer network in Canada that we now offer the ability to order and pay for products in Canadian dollars versus U.S. dollars. We believe this offering will help to strengthen our long-term results in Canada while eliminating the margin and quoting uncertainty associated with volatility in foreign exchange rates for our dealers. We experienced a recovery in Canada which contributed to an increase in Canadian revenue of 29% and 13% in 2017 and 2016, respectively.

Number of Controllers Sold

Our controllers contain our proprietary software and provide consumers with the essential technology to enable home control, automation and personalization. The number of controllers we sell in a given period provides us with an indication of consumer adoption of our technology, though a variety of other factors may also impact controller sales variability from period to period. Our sales of controllers also create significant opportunity to sell our other products and services. Once a consumer has deployed our controller, we believe that the consumer is more likely to remain committed to our technology platform and purchase more of our products, applications and services in the future.

In ~~January~~February ~~2016~~2018, we ~~introduced~~released aour ~~new~~CA-1 ~~line~~controller, ofwhich ~~entertainment~~is ~~and~~designed ~~automation~~for ~~controllers,~~entry-level ~~the~~projects EAfor ~~Series.~~homeowners ~~With~~interested ~~three~~in ~~separate~~lighting, ~~models~~temperature control, ~~our~~and EAsecurity. ~~Series~~Our isEntertainment ~~designed~~and Audio (“EA”) and ~~priced~~Controller ~~for~~and ~~projects~~Automation ~~ranging~~(“CA”) ~~from~~controllers, together, better address a broad range of solutions from simple single- room projects to anlarge, ~~entire~~elegant whole-home ~~or estate~~deployments. AsOur aEA-1 ~~result~~and ofCA-1 controllers broaden the ~~launch,~~addressable wemarket ~~saw~~for aour ~~significant~~solutions ~~increase~~by inproviding ~~controller~~single-room ~~sales.~~and ~~Although~~lower ~~end~~cost ~~customer~~solutions ~~adoption,~~which ~~sell-through,~~typically ~~and~~involve ~~overall~~more ~~revenue~~narrowly ~~growth~~defined ~~for~~use ~~the~~cases ~~new~~with ~~controllers~~fewer ~~continues~~connected todevices. beDuring ~~strong~~the year ended December 31, 2018, 25% of the ~~increase~~Control4 inautomation ~~2016~~projects ~~was~~our ~~due~~dealers insold ~~part~~were tosingle-room ~~initial~~or ~~purchases~~low-cost byprojects ~~dealers~~consisting ~~for~~only ~~their~~of ~~showrooms~~a controller or controller paired with a remote.

During the year ended December 31, ~~2017~~2018, we sold ~~104~~114,~~320~~311 controllers, compared to 104,~~225~~320 and 73104,~~207~~225 controllers sold in the same periods in ~~2016 and 2015, respectively. Controller sales remained flat for the year ended December 31,~~ 2017 ~~compared to 2016. This compares to our overall growth in revenue of 17% during the same period. We believe severe weather during the second half of 2017 in Florida, Texas~~ and portions of the Central United States. delayed many projects, which in turn temporarily impacted controller order rates in those regions. Additionally, we launched our EA-Series Controllers in February of 2016, and 2016 likely benefited from one-time, discounted dealer showroom demo sales typical of new product introductions, creating a difficult year-over-year comparison for unit sales in the year ended December 31, 2017respectively.

Core Revenue Growth

The majority of our revenue comes from sales of our products through our distribution channels comprised of independent dealers in the United States and Canada, and independent dealers and distributors located throughout the rest of the world. We refer to revenue attributable to sales through dealers located in the United States and Canada as “North America Core revenue”,” and revenue attributable to sales through dealers and distributors located throughout the rest of the world as “International Core revenue.” Core revenue does not include revenue from sales to hotels or certain specialty display products and associated installation sales in Australia.

International Revenue as a Percentage of Total Revenue

We believe that the international market represents a large and underpenetrated opportunity for us. We have established or acquired sales support offices in Australia, China, Germany, India, New Zealand, Switzerland, and the United Kingdom. We have formed relationships with independent international dealers and distributors, and we have expanded foreign language support for our solutions. We track international revenue as a percentage of total revenue as a key measure of our success in expanding our business internationally.

Table of Contents

and associated installation sales in Australia.

International Revenue as a Percentage of Total Revenue

We believe that the international market represents a large and underpenetrated opportunity for us. We have established or acquired sales support offices in the United Kingdom, Australia, Germany, China, and India. We have formed relationships with independent international dealers and distributors, and we have expanded foreign language support for our solutions. We track international revenue as a percentage of total revenue as a key measure of our success in expanding our business internationally.

Results of Operations

Revenue

The following is a breakdown of our revenue between North America and International Core revenue and other revenue:

	Years Ended
	December 31,
	2017			2016			2015
	2018			2017			2016
	(in thousands)
	(in thousands, except percentages)
North America Core Revenue	$	~~187~~206,~~283~~490		$	~~162~~186,~~037~~853		$	~~123~~161,~~431~~477
International Core Revenue		5261,~~034~~201			4151,~~890~~914			3741,~~275~~778
Other Revenue		54,~~408~~767			45,~~875~~408			24,~~473~~875
Total Revenue	$	~~244~~272,~~725~~458		$	~~208~~244,~~802~~175		$	~~163~~208,~~179~~130
North America Core Revenue as a % of Total Revenue		7776	%		7877	%		7678	%
International Core Revenue as a % of Total Revenue		2122	%		2021	%		2320	%

~~2017~~2018 Compared to ~~2016~~2017. North America Core revenue increased $2519.26 million, or 1611%, in ~~2017~~2018 compared to ~~2016~~2017. International Core revenue increased $109.13 million, or 2418%, in 2018 compared to 2017.

Revenue growth in both North America and ~~International~~internationally ~~Core~~is ~~revenue was~~ driven by a variety of factors. ~~including~~We ~~contributions~~continue ~~from~~to ~~each~~see ofgrowth ~~our~~from ~~product~~net ~~brands,~~new ~~channel~~dealer ~~expansion~~additions ~~from~~as ~~acquired~~well ~~products~~as ~~(Pakedge~~growth ~~and~~from ~~Triad) sold to~~ existing dealers ~~and~~driven ~~distributors,~~by ~~and~~an ~~growth~~increase in the ~~majority~~number of ~~our~~projects ~~global~~that ~~sales~~are ~~territories. Revenue~~being ~~from~~performed ~~Triad~~and ~~was~~increased ~~$12.6~~project ~~million for the period from the February 28~~share, ~~2017~~which ~~acquisition~~is ~~date~~a toderivative ~~December~~of ~~31,~~our ~~2017.~~new ~~Our~~product ~~total~~innovation ~~revenue~~and ~~without~~our ~~Triad~~acquisition ~~was $232~~strategy.1 ~~million for the year ended December 31, 2017, representing organic year-over-year growth of 11%.~~

Our international sales model includes both direct-to-dealer and distribution ~~models~~channels. In targeted international regions and countries, we generally invest in some combination of local technical support, training personnel and facilities, warehousing and fulfillment, and sales support personnel. We have made these types of investments in the regions serviced by our offices in ~~the~~Australia, ~~United Kingdom~~China, Germany, ~~Australia,~~India ~~China,~~ and ~~India~~the United Kingdom and these are markets where we see our greatest opportunity for international growth and expansion. We will make similar investments during 2019 in Ireland, New Zealand, and Switzerland where we have recently transitioned to a direct-to-dealer model.

The following table further breaks out our International Core revenue and illustrates the relative revenue growth we are experiencing in the regions serviced by our offices in ~~the~~Australia, ~~United Kingdom~~China, Germany, ~~Australia,~~India ~~China,~~ and ~~India~~the United Kingdom compared to other international regions.

	Years Ended
	December 31,
	2017		2016		2015
	2018		2017		2016
	(in thousands)
Targeted International Regions (1)		4149,~~575~~797		3241,~~783~~479		2632,~~726~~696
Other International Regions		1011,~~459~~404		910,~~107~~435		109,~~549~~082
Total International Core Revenue	$	5261,~~034~~201	$	4151,~~890~~914		3741,~~275~~778
(1) Serviced by our offices in the United Kingdom, Germany, Australia, China, and India.
(1) Serviced by our offices in the Australia, China, Germany, India and the United Kingdom.

International Core revenue in the regions serviced by our offices in Australia, China, Germany, India, and the United Kingdom grew 20% in 2018 compared to 2017, while International Core revenue in the other international regions increased 9% during the same period.

Net new dealer growth as well as growth from existing dealers in our targeted international regions have generally contributed to an increase in revenue in 2018 compared to 2017. A higher percentage of sales were made direct-to-dealer in our other international regions in 2018 compared to 2017. The revenue growth in our other international regions was negatively impacted by ownership changes and unfavorable geo-political conditions during the first half of 2018.

We continue to make investments internationally to improve our dealers’ ability to sell and install our products and believe that these investments will enable us to grow our key international markets. Notwithstanding the foregoing, we sell

Table of Contents

~~International~~broadly ~~Core~~throughout ~~revenue in~~ the ~~regions~~world ~~serviced~~and bywe ~~our~~believe ~~offices~~that inregional ~~the United Kingdom, Germany, Australia, China~~ and ~~India~~adverse ~~grew 27% in 2017 compared to 2016, while International Core revenue in the other~~ international ~~regions increased 15% during the same period. Improvements in general~~ economic conditions inmay ~~many~~create ofchallenges ~~our~~and ~~other~~slow ~~international~~growth ~~markets has contributed to improvements~~ in ~~our~~certain ~~growth rates compared to 2016~~geographies.

We2017 ~~continue~~Compared to ~~make~~2016. North ~~investments~~America ~~internationally~~Core torevenue ~~improve~~increased ~~our~~$25.4 ~~dealers’~~million, ~~ability~~or to16%, ~~sell~~in ~~and~~2017 ~~install~~compared ~~our products and believe that these investments will enable us~~ to ~~grow~~2016. ~~our~~International ~~key~~Core ~~international~~revenue ~~markets~~increased $10.1 ~~Notwithstanding the foregoing~~million, weor ~~sell broadly throughout the world and we believe that regional~~24%, ~~adverse~~in ~~international~~2017 ~~economic~~compared ~~conditions~~to ~~may create challenges and slow growth in certain geographies~~2016.

~~2016~~Revenue ~~Compared~~growth toin ~~2015.~~ both North America and International Core revenue ~~increased~~was ~~$38.6~~driven ~~million,~~by ora ~~31%~~variety of factors including contributions from each of our product brands, inchannel ~~2016~~expansion ~~compared~~from toacquired ~~2015.~~products ~~International~~(Pakedge ~~Core~~and ~~revenue~~Triad) ~~increased~~sold ~~$4.6~~to ~~million,~~existing ordealers ~~12%~~and distributors, and growth in ~~2016.~~the majority of our global sales territories.

The acquisition of Pakedge on January 29, 2016 partially contributed to this growth. We also experienced an increase in the number of dealers and distributors selling our products and services, resulting in an increase in the number of system sales, as well as revenue growth from the release of several new products including our EA Series controllers.

Other revenue increased $2.4 million, or 97%, in 2016 compared to 2015, primarily related to sales in the hospitality industry, which is project-based and has been, and will continue to be, uneven from period to period.

Gross Margin

As a percentage of revenue, our gross margin has been, and will continue to be, affected by a variety of factors. Our gross margin is relatively consistent across our products. Our gross margin on third-party products that we sell through our online distribution platform is higher than our gross margin on our other product sales because we only recognize our net profit on these sales as revenue. While software licensing and subscription revenue is not material for all periods presented, this category is growing, and our gross margin is higher on software licensing and subscription revenue than it is on product sales. Our gross margin is also higher on our sales made directly through dealers than it is on our sales made through distributors. Gross margin may be negatively affected by price competition in our target markets, ~~and~~ associated promotional or volume incentive rebates offered to our independent dealers and distributors, as well as changes in import and export tariffs.

In addition, in conjunction with our acquisitions of Triad, ~~Pakedge~~ and ~~Nexus~~Pakedge, we were required to record acquired inventory at fair value, as determined under ASC 805, Business Combinations, resulting in a step-up in the inventory value. Such step-up is recorded through cost of goods sold when the specific inventory is sold, resulting in a negative impact to our gross margin. Also, cost of goods sold includes ongoing, periodic amortization of the acquired technology.

Gross margin for the years ended December 31, ~~2017~~2018, ~~2016~~2017, and ~~2015~~2016 was as follows (in thousands, except percentages):

	Years Ended
	December 31,
	2017			2016			2015
	2018			2017			2016
Gross margin	$	~~124~~142,~~495~~003		$	~~103~~123,~~679~~945		$	81103,~~534~~007
Percentage of revenue		5052.91	%		4950.78	%		5049.05	%

~~2017~~2018 Compared to ~~2016~~2017. As a percentage of revenue, our gross margin was 5052.91% in ~~2017~~2018 compared to 4950.78% in ~~2016~~2017. The increase in gross margin was ~~due~~ primarily due to ~~the~~favorable ~~amount~~fluctuations ofin ~~step-up~~exchange rates in ~~Pakedge~~markets ~~inventory~~where ~~that~~we ~~was~~sell ~~recorded~~our products in ~~2016~~the ~~compared~~local tocurrency, ~~2017.~~lower ~~Other~~expedited ~~factors~~shipping ~~include~~costs ~~manufacturing~~associated ~~rebates~~with ~~received~~inventory purchases, and an increase in ~~2017~~4Sight assubscriptions ~~well~~due asto ~~reductions~~enabling inend-customers ~~volume~~with ~~incentive~~the ~~rebates~~ability ~~and~~to ~~discounts~~self-renew their subscriptions online.

~~The~~Our ~~negative~~sales ~~effect~~in onEurope, ~~gross~~Australia ~~margin~~and ~~percentage~~Canada ~~resulting~~are ~~from~~generally priced in the ~~step-up~~pound insterling ~~purchased~~or ~~inventory~~the ~~carrying~~euro, ~~value~~the ~~impacted~~Australian dollar and the Canadian dollar, respectively, while our ~~results~~cost of ~~operations~~goods ~~for~~sold ~~2017,~~is asdenominated itin ~~relates~~the toU.S. ~~Pakedge~~dollar. ~~and~~The ~~Triad~~changing value of the pound sterling, the euro, and the Australian and Canadian dollars relative to the U.S. dollar will continue to contribute to variability in our ~~results~~gross margin for ~~2016~~sales asin itEurope, ~~relates~~Australia toand ~~Pakedge~~Canada.

The ~~introduction~~impact of ~~new~~distribution ~~products~~and ~~generally~~other ~~has~~overhead aexpenses ~~negative~~as ~~impact~~a onpercentage ~~gross~~of ~~margins~~revenue ason weour ~~offer~~gross ~~discounted~~margin ~~pricing~~percentage tovaries ~~our~~depending ~~dealers~~on ~~for~~total ~~demo~~revenue ~~units~~and ~~placed~~overhead spending in ~~their~~a ~~showrooms~~given period.

~~Our~~Beginning ~~sales~~ in ~~Europe~~the second quarter of 2018, ~~Australia~~we began making incremental investments in our global fulfillment centers to accommodate growth and ~~Canada~~improve ~~are~~delivery ~~generally~~times ~~priced~~to our dealers, which increased our cost of goods sold in the ~~pound~~second ~~sterling~~half orof ~~the~~2018 ~~euro,~~but should enable us to continue to scale and improve gross margins in future years. These expenses continued to increase during the ~~Australian~~fourth ~~dollar~~quarter of 2018 as we began shipping out of our new U.S. East coast fulfillment center and will impact the full-year 2019.

Recently, the U.S. government announced new tariffs on goods imported from China. The first of these new tariffs went into effect on July 6 and August 23, 2018 for certain classes of imported goods, while further tariffs are currently under consideration. During the fourth quarter of 2018, we absorbed the impact of the new tariffs, and we plan to continue to absorb

Table of Contents

~~and~~these ~~the~~currently ~~Canadian~~announced ~~dollar,~~tariffs ~~respectively, while our cost of goods sold is denominated~~ in ~~the U~~2019.S. ~~dollar.~~We ~~The~~will ~~changing~~monitor ~~value~~developments ofand ~~the~~changes ~~pound~~to ~~sterling,~~import ~~the~~tariffs ~~euro,~~so ~~and~~that ~~the~~we ~~Australian~~can plan and ~~Canadian~~address ~~dollars~~these ~~relative~~developments toand ~~the~~changes, ~~U.S.~~as ~~dollar~~well ~~will~~as ~~continue~~explore toall ~~contribute~~options to ~~variability~~reduce inthe ~~our~~impact ~~gross~~of ~~margin~~any ~~for~~further ~~sales~~tariffs inor ~~Europe,~~other ~~Australia~~rule ~~and Canada~~changes.

~~The~~2017 ~~impact~~Compared to 2016. As a percentage of ~~distribution~~revenue, ~~and~~our ~~other~~gross ~~overhead~~margin ~~expenses~~was as50.8% ain ~~percentage~~2017 ofcompared ~~revenue~~to on49.5% ~~our~~in 2016. The increase in gross margin ~~percentage~~was ~~varies~~due ~~depending~~primarily onto ~~total~~the ~~revenue~~amount ~~and~~of ~~overhead~~step-up ~~spending~~in Pakedge inventory that was recorded in a2016 ~~given~~compared ~~period~~to 2017. Other factors include manufacturing rebates received in 2017 as well as reductions in volume-incentive rebates and discounts.

WeThe ~~anticipate~~negative ~~making~~effect ~~incremental~~on ~~investments~~gross inmargin ~~our~~percentage ~~global~~resulting ~~fulfillment~~from ~~centers~~the step-up in ~~2018~~purchased toinventory ~~accommodate~~carrying ~~growth~~value ~~and~~impacted ~~improve~~our ~~delivery~~results ~~times~~of tooperations ~~our~~for ~~dealers~~2017, ~~which~~as ~~will~~it ~~moderate~~relates ~~our~~to ~~gross~~Pakedge ~~margin~~and ~~improvements~~Triad, ~~during~~and ~~2018,~~our ~~but~~results ~~should~~for ~~enable~~2016 usas toit ~~continue~~relates to ~~scale and improve gross margins in future years~~Pakedge.

2016 Compared to 2015. As a percentage of revenue, our gross margin was relatively flat in 2016 compared to 2015. The gross margin in 2016 was negatively impacted by the amortization of the technology acquired from Pakedge and Nexus, the step-up in basis recorded as we sold the purchased inventory in conjunction with our acquisition of Pakedge as well as the direct-to-dealer transition in Australia, and decreases in the selling price of our products in certain foreign markets due to the strengthening of the U.S. dollar relative to certain international currencies. These factors were offset by the expiration of certain royalty payments, component and other product cost reductions as well as product mix and associated pricing.

Research and Development Expenses

Research and development expenses consist primarily of compensation for our engineers and product managers, including non-cash stock-based compensation expense. Research and development expenses also include prototyping and field-testing expenses incurred in the development of our products. We also include fees paid to agencies to obtain regulatory certifications. Finally, research and development expenses include ongoing, periodic amortization of acquired intangible assets.

Research and development expenses for the years ended December 31, ~~2017~~2018, ~~2016~~2017, and ~~2015~~2016 were as follows (in thousands, except percentages):

	Years Ended
	December 31,
	2017			2016			2015
	2018			2017			2016
Research and development	$	4043,~~638~~605		$	3540,~~985~~638		$	3235,~~385~~985
Percentage of revenue		1716	%		17	%		2017	%

~~2017~~2018 Compared to ~~2016~~2017. Research and development expenses increased by $43.70 million, or 137%, in ~~2017~~2018 compared to ~~2016~~2017. The increase in absolute dollars primarily relates to personnel costs, ~~including~~which ~~non-cash~~in ~~stock~~part ~~compensation~~can ~~expense~~be ~~and~~attributed to increased headcount, ~~which~~to ~~can~~enhance beexisting ~~partially~~product ~~attributed~~lines toand ~~the~~ongoing ~~employees~~innovations, ~~added~~as ~~from~~well ~~the~~as ~~Triad~~product ~~acquisition~~development, tooling and contract labor costs.

Our research and development expenses both as a percentage of revenue and in absolute dollars fluctuate depending on our investments in the development of new solutions. For example, the timing of new hardware releases and the expense associated with prototyping, beta testing and compliance and regulatory fees can have an impact on total research and development expenses from period to period.

For ~~2018~~2019, we expect research and development expenses to increase in absolute dollars and as a percent of revenue, as we continue to invest in new product development, toincluding ~~drive~~approximately ~~future~~$3.5 ~~revenue~~million ~~growth,~~in ~~but~~incremental tocosts ~~remain~~as ~~flat~~a orresult ~~decrease~~of ~~slightly~~the asNEEO aacquisition, ~~percentage~~to ofdrive future revenue growth.

~~2016~~2017 Compared to ~~2015~~2016. Research and development expenses increased by $34.67 million, or 1113%, in ~~2016~~2017 compared to ~~2015~~2016. The increase in ~~2016~~absolute ~~included~~dollars ~~approximately~~primarily ~~$4.0~~relates ~~million~~to inpersonnel ~~expenses~~costs, ~~associated~~including ~~with~~non-cash ~~our~~stock-based ~~new~~compensation ~~networking~~expense ~~products~~and increased headcount, ~~offset~~which bycan ~~lower~~be ~~overall~~partially ~~spending~~attributed ~~for~~to ~~our~~the ~~ongoing~~employees ~~product~~added ~~development~~from ~~activities~~the Triad acquisition.

Sales and Marketing Expenses

Sales and marketing expenses consist primarily of compensation and related travel expenses for our sales, technical support and marketing personnel, including non-cash stock-based compensation expense. Sales and marketing expenses also include expenses associated with trade shows, marketing events, advertising and other marketing-related programs. We also include the amortization of certain intangible assets such as those related to our dealer network as well as those related to trademarks/trade names.

Table of Contents

Sales and marketing expenses for the years ended December 31, ~~2017~~2018, ~~2016~~2017, and ~~2015~~2016 were as follows (in thousands, except percentages):

	Years Ended
	December 31,
	2017			2016			2015
	2018			2017			2016
Sales and marketing	$	4750,~~825~~834		$	4247,~~198~~825		$	3242,~~594~~198
Percentage of revenue		2019	%		20	%		20	%

~~2017~~2018 Compared to ~~2016~~2017. Sales and marketing expenses increased by $53.60 million, or 136%, in ~~2017~~2018 compared to ~~2016~~2017. The increase in absolute dollars primarily relates to increased personnel costs, which can be attributed to expanding our support for our growing sales channels including ~~non-cash~~additional ~~stock~~staffing ~~compensation~~to ~~expense~~support marketing and ~~increased~~sales ~~headcount~~services ~~primarily~~provided ~~associated~~on ~~with~~behalf ~~recent~~of ~~business~~our ~~acquisitions~~dealers, ~~and~~as ~~increased~~well ~~year-over-year~~as ~~sales~~credit card processing fees associated with revenue growth.

~~We intend to continue to supplement our more traditional marketing programs with lead generation programs, including social media and pay-per-click advertising.~~ For ~~2018~~2019, we expect sales and marketing expenses to increase in absolute dollars as we work to grow our global sales channels but to remain generally flat ~~or decrease slightly~~ as a percentage of revenue.

~~2016~~2017 Compared to ~~2015~~2016. Sales and marketing expenses increased by $95.6 million, or 2913%, in ~~2016~~2017 compared to ~~2015~~2016. The increase in absolute dollars ~~for~~primarily ~~sales~~relates ~~and marketing expenses in 2016 included $4.1 million in expenses associated with our new networking products as well as amortization of intangible assets related~~ to ~~the~~personnel ~~Pakedge acquisition. In addition~~costs, weincluding ~~increased~~non-cash ~~our general marketing expenses to increase lead generation, transition to a direct~~stock-~~to-dealer~~based ~~model~~compensation inexpense ~~Australia~~ and ~~Germany,~~increased ~~grow~~headcount ~~our~~primarily ~~dealer~~associated ~~and~~with ~~distributor~~recent ~~networks~~business ~~throughout~~acquisitions ~~the world~~ and ~~deliver tools to the sales channel to support local marketing and sales lead generation. Furthermore, personnel costs~~ increased ~~primarily due to increased sales as well as non~~year-~~recurring~~over-year ~~acquisition related restructuring charges~~sales.

General and Administrative Expenses

General and administrative expenses consist primarily of compensation for our employees in our executive administration, finance, information systems, human resource and legal departments, including non-cash stock-based compensation expense. Also included in general and administrative expenses are outside legal fees, audit fees, facilities expenses and insurance costs. Finally, during a period with an acquisition, we also include acquisition-related costs in general and administrative expenses.

General and administrative expenses for the years ended December 31, ~~2017~~2018, ~~2016~~2017, and ~~2015~~2016 were as follows (in thousands, except percentages):

	Years Ended
	December 31,
	2017			2016			2015
	2018			2017			2016
General and administrative	$	2126,~~926~~399		$	2021,~~309~~926		$	1720,~~355~~309
Percentage of revenue		910	%		109	%		1110	%

~~2017~~2018 Compared to ~~2016~~2017. General and administrative expenses increased by $14.65 million, or 820%, in ~~2017~~2018 compared to ~~2016~~2017. The increase in absolute dollars primarily relates to personnel costs, including non-cash stock-based compensation expense, global facilities expense due to increased rates upon renewal of certain leases and additional leased space to accommodate growth, as well as ~~facilities~~professional ~~costs~~fees, including professional fees associated with ~~our~~revised ~~leased~~customs ~~office~~tariff rules, ~~training~~business development expenses, and ~~warehousing~~expenses ~~space~~related to ceasing to be an “emerging growth company” as defined in the JOBS Act as of December 31, 2018.

WeFor 2019, we expect our general and administrative expenses to increase year-over-year in absolute dollars ~~and~~ as a ~~percentage of revenue in 2018 as a~~ result of ~~growth in~~ the ~~business,~~growth ~~including higher market rates on certain facilities lease renewals and additional regulatory compliance due to the expiration~~ of ~~exemptions available to us through the JOBS Act. We also expect~~ our ~~general~~business, ~~and~~but ~~administrative expenses~~ to ~~fluctuate~~decrease modestly as a percentage of ~~our~~ revenue ~~in future periods based on fluctuations in our revenue and the timing of those expenses~~.

~~2016~~2017 Compared to ~~2015~~2016. General and administrative expenses increased by $31.06 million, or 178%, in ~~2016~~2017 compared to ~~2015~~2016. The increase in absolute dollars is primarily ~~due~~relates to ~~increased~~ personnel costs, ~~and~~including ~~other~~non-cash ~~administrative~~stock-based ~~costs~~compensation ~~associated with running our business~~expense, ~~including~~as ~~$0.9~~well ~~million~~as infacilities ~~non-recurring transition~~ costs associated with ~~the~~our ~~Pakedge~~leased ~~integration~~office, intraining, ~~2016~~and warehousing space.

Table of Contents

Litigation Settlement Expenses

Litigation settlement expenses for the years ended December 31, ~~2017~~2018, ~~2016~~2017, and ~~2015~~2016 were as follows (in thousands, except percentages):

	Years Ended
	December 31,
	2017			2016			2015
	2018			2017			2016
Litigation settlement	$	-		$	~~475~~-		$	21475
Percentage of revenue		0	%		0	%		0	%

~~2017~~2018 Compared to ~~2016~~2017. During 2018 and 2017, we did not incur any material expenses related to litigation settlement.

~~2016~~2017 Compared to ~~2015~~2016. During 2016, we expensed $0.5 million in connection with certain legal matters.

Stock-based Compensation Expenses

Stock-based compensation expenses increased to $1213.15 million for the year ended December 31, ~~2017~~2018 compared to $812.41 million and $78.04 million for the years ended December 31, ~~2016~~2017 and ~~2015~~2016, respectively. This increase is ~~the~~due ~~result~~to of the ~~achievement~~overall ofincrease ~~certain performance metrics included~~ in the ~~terms~~number of ~~our~~employees ~~compensation~~whose ~~structure approved by our Board of Directors that better aligns senior management and executive~~ compensation ~~with~~includes ~~the~~stock-based ~~performance of the company~~awards.

A significant portion of executive stock-based awards are tied to performance measures and should those performance measures be achieved, there could be a similar increase in stock-based compensation expense in 2019.

Other Income (Expense)

Other income (expense) consists primarily of foreign currency transaction gains (losses) and net interest income (expense). Other income (expense) for the years ended December 31, ~~2017~~2018, ~~2016~~2017, and ~~2015~~2016 were as follows (in thousands, except percentages):

	Years Ended
	December 31,
	2017			2016			2015
	2018			2017			2016
Other income (expense)	$	~~331~~(316)		$	~~(542)~~331		$	(~~563~~542)
Percentage of revenue		0	%		0	%		0	%

We had other ~~income~~expense of $0.3 million in ~~2017~~2018 compared to other ~~expense~~income of $0.53 million in ~~2016~~2017 ~~while~~and other expense ~~remained~~of ~~relatively~~$0.5 ~~flat~~million in 2016 ~~compared to 2015~~. Other income (expense) varies primarily as a result of net foreign currency gains (losses) generated on our U.S. dollar obligations that are carried in local currency by our foreign subsidiaries. This is due to the U.S. dollar fluctuating in value against the pound sterling, euro, and Australian dollar during the periods, causing those U.S. dollar obligations, primarily intercompany payable to the U.S. entity, to decrease or increase in local currency resulting in increased other income (expense).

~~Beginning~~We ~~in the second quarter of 2015, we~~enter ~~began entering~~ into forward contracts to help offset the exposure to movements in foreign currency exchange rates in relation to certain U.S. dollar denominated balance sheet accounts of our subsidiaries in the United Kingdom and Australia. We settle our foreign exchange contracts on the last day of every month and enter into a new forward contract effective on the first day of the next month. Changes in the fair value (i.e. gains or losses) of these derivative instruments are recorded as other income (expense), net.

Income Tax Expense (Benefit)

Income tax expense (benefit) for the years ended December 31, 2017, 2016, and 2015 were as follows (in thousands, except percentages):

	Years Ended
	December 31,
	2017			2016			2015
Income tax expense (benefit)	$	(1,542)		$	(8,784)		$	268
Percentage of revenue		-1	%		-4	%		0	%

Table of Contents

Income ~~tax~~Tax ~~benefit~~Expense was approximately 11% and 211% of income before income taxes for the years ended December 31, 2017 and 2016, respectively, and income tax expense was approximately 19% of income before income taxes for the year ended December 31, 2015. The effective tax rate differs from the U.S. federal statutory rate of 34% primarily due to the domestic valuation allowance offsetting most of the statutory rate, partial reversal of the valuation allowance due to the deferred tax liabilities that were recorded as part of the Triad and Pakedge acquisitions in 2017 and 2016, respectively, state income taxes, foreign income taxes, U.S. federal alternative minimum tax and excess tax deductions in 2017 resulting from share-based compensation and related accounting changes due to the adoption of ASU 2016-09 during the year. Cash payments for taxes of $1.3 million in 2017 are primarily related to provisional tax payments paid in Australia and federal alternative minimum tax and state taxes paid in the United States.(Benefit)

~~Significant~~Income ~~judgment is required in determining our provision for income taxes and evaluating our uncertain~~ tax ~~positions.~~expense In(benefit) evaluating our ability to recover our deferred tax assets, in full or in part, we consider all available positive and negative evidence, including our past operating results, our forecast of future market growth, forecasted earnings, future taxable income and prudent and feasible tax planning strategies. Due to historical net losses incurred and the uncertainty of realizing the deferred tax assets, for ~~all~~ the ~~periods~~years ~~presented,~~ended ~~we have a full valuation allowance against our domestic deferred tax assets. To the extent that we generate positive domestic income and expect~~December 31, ~~with reasonable certainty~~2018, ~~to continue to generate positive income~~2017, weand ~~may~~2016 ~~release~~were ~~our~~as ~~valuation~~follows ~~allowance~~ (in athousands, ~~future~~except ~~period. This release would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period such release is made.~~percentages):

On December 22, 2017, the United States enacted the Tax Act. The Tax Act makes broad and complex changes to the U.S. tax code, including a one-time mandatory transition tax on accumulated foreign earnings and a reduction of the corporate income tax rate to 21% effective January 1, 2018, among others. We are required to recognize the effect of the tax law changes in the period of enactment, such as determining the transition tax and remeasuring our U.S. deferred tax assets and liabilities. In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”), which allows us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. Where we have been able to make reasonable estimates of the effects of the Tax Act for which our analysis is not yet complete, we have recorded provisional amounts in accordance with SAB 118. Where we have not yet been able to make reasonable estimates of the impact of certain elements of the Tax Act, we have not recorded any amounts related to those elements and we have continued accounting for them in accordance with the tax laws in effect immediately prior to the enactment of the Tax Act.


	Years Ended
	December 31,
	2018			2017			2016
Income tax (benefit)	$	(22,991)		$	(1,568)		$	(8,800)
Percentage of revenue		-8	%		-1	%		-4	%

~~Although~~Income ~~our~~tax ~~accounting~~benefit was approximately 110%, 11%, and 252% of income before income taxes for the ~~Tax~~years ~~Act~~ended isDecember 31, ~~incomplete~~2018, we2017 ~~were~~and ~~able~~2016, torespectively. ~~make~~The ~~reasonable~~effective ~~estimates~~tax rate differs from the U.S. federal statutory rate of ~~certain~~21% ~~effects~~for the year ended December 31, 2018, primarily due to the release of the ~~Tax~~domestic ~~Act~~valuation allowance against all domestic net deferred tax assets other than foreign tax credits, state income taxes, and ~~record~~tax ~~provisional~~deductions ~~amounts~~resulting from stock-based compensation. The ~~Tax~~effective ~~Act~~tax ~~reduces~~rate differs from the U.S. federal ~~corporate~~statutory ~~tax~~ rate ~~from~~of 34% ~~to 21%~~ for ~~tax~~the ~~years~~year ~~beginning~~ended ~~after~~ December 31, 2017., Weprimarily ~~have~~due ~~evaluated~~to ~~the~~changes ~~decrease~~to in the deferred tax rate associated with the Tax Cuts and ~~have~~Jobs ~~recorded~~Act, athe ~~provisional~~domestic valuation allowance, ~~one-time~~the ~~tax~~partial ~~expense~~reversal of ~~approximately~~the ~~$9.0~~valuation ~~million.~~allowance ~~This~~due ~~expense~~to ~~was offset~~the bydeferred antax ~~equal~~liabilities ~~change~~recorded inas ~~our~~part ~~valuation~~of ~~allowance~~the Triad acquisition, and tax deductions resulting infrom astock-based ~~net~~compensation. The effective tax ~~expense~~rate ordiffers ~~benefit~~from ofthe $0U. WeS. ~~have~~federal ~~also~~statutory ~~recorded~~rate aof ~~one-time~~35% ~~tax~~for ~~benefit~~the ~~and~~year ~~corresponding~~ended ~~reduction~~December 31, 2016, primarily due to ~~our~~the domestic valuation allowance, the partial reversal of ~~$0.4~~the ~~million~~valuation ~~related~~allowance due to ~~Alternative~~the ~~Minimum~~deferred ~~Tax~~tax ~~credit~~liabilities ~~carryforwards~~recorded ~~that~~as ~~are~~part ~~expected~~of tothe bePakedge ~~refundable;~~acquisition, ~~the~~incentive ~~Tax~~stock ~~Act~~options, ~~contributed~~and tostate income taxes. Cash payments for taxes of $01.2 million ofin ~~this~~2018 ~~tax~~are ~~benefit.~~primarily Werelated ~~are~~to ~~still~~provisional ~~completing~~tax ~~our~~payments ~~evaluation~~paid ofin ~~the~~Australia ~~impact~~and offederal ~~these~~and ~~changes~~state intaxes ~~accordance~~paid ~~with~~in ~~SAB~~the ~~118~~United States.

~~Our~~Significant ~~financial~~judgment ~~statements~~is ~~for~~required ~~the~~in ~~year~~determining ~~ended~~our ~~December~~provision ~~31,~~for ~~2017,~~income dotaxes ~~not~~and ~~reflect~~evaluating ~~the~~our ~~impact~~uncertain oftax ~~certain~~positions. ~~aspects~~In ofevaluating ~~the~~our ~~Tax~~ability ~~Act~~to asrecover weour ~~did~~deferred ~~not~~tax ~~have~~assets, ~~the~~in ~~necessary~~full ~~information~~or ~~available,~~in ~~prepared~~part, orwe ~~analyzed~~consider inall ~~sufficient~~available ~~detail~~positive toand ~~determine~~negative anevidence, ~~actual~~including orour ~~provisional~~past ~~amount~~operating ~~for~~results, ~~the~~our ~~tax~~forecast ~~effects~~ of ~~the~~future ~~Tax~~market ~~Act.~~growth, ~~The~~forecasted ~~tax on unrepatriated foreign~~ earnings, isfuture ataxable ~~tax~~income ~~on previously untaxed accumulated~~ and ~~current~~prudent ~~earnings~~ and ~~profits~~feasible oftax ~~our~~planning ~~foreign subsidiaries~~strategies. WeUpon ~~are~~review ~~not~~of ~~able~~all topositive ~~complete the accounting for federal~~ and ~~state~~negative ~~income~~evidence, ~~tax~~including ~~items~~positive ~~related~~domestic ~~to the one-time deemed repatriation transition tax on unrepatriated foreign~~ earnings and ~~the~~our ~~associated~~expectation ~~unrecognized~~to ~~deferred~~continue ~~tax~~to ~~liability~~generate ~~for~~positive ~~foreign~~domestic ~~earnings~~income ~~that~~with ~~will~~reasonable ~~remain indefinitely reinvested. As a result~~certainty, ~~no provisional amounts have been recorded and~~ we ~~continue~~determined toit ~~account~~was ~~for~~appropriate ~~unrepatriated earnings of foreign subsidiaries under the laws existing prior~~ to ~~the~~release ~~enactment date of~~ the ~~Tax~~domestic ~~Act. We~~valuation ~~anticipate~~allowance ~~being~~for ~~able to offset~~ the ~~additional~~year ~~tax~~ended ~~expense~~December ~~associated~~31, 2018, with the ~~one-time~~exception ~~tax~~of ~~with~~our ~~available~~U.S. ~~net operating loss carryovers and/or~~ foreign tax ~~credits.~~credit ~~Additionally~~carryovers, wewhich are ~~still~~not ~~evaluating~~more ~~the~~likely ~~unrecognized~~than ~~deferred~~not ~~tax liability related~~ to ~~investment~~be inrealized ~~foreign~~before ~~subsidiaries~~expiration. ~~and~~This ~~joint~~release ~~ventures~~resulted ~~that~~in ~~will~~the ~~remain~~recognition ~~indefinitely~~of ~~reinvested~~certain ~~subsequent~~deferred ~~to the one-time transition~~ tax. Weassets ~~anticipate~~and ~~that~~a ~~this~~decrease ~~will~~to ~~not~~income ~~impact~~ tax expense, asfor wethe ~~intend~~year toended ~~continue~~December ~~indefinitely~~31, ~~reinvesting our unremitted foreign earnings in Australia and the U~~2018.K.

The Tax Act also creates a new requirement on global intangible low-taxed income (“GILTI”) earned by foreign subsidiaries. The GILTI provisions require foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s assets to be included in our U.S. income tax return. Due to the complexity of the new GILTI tax rules, we are continuing to evaluate this provision of the Tax Act. Under U.S. GAAP, we are permitted to make an accounting policy

Table of Contents

election to either treat taxes due on future inclusions in U.S. taxable income related to GILTI as a current-period expense when incurred or to factor such amounts into the measurement of our deferred taxes. We have not yet completed our analysis of the GILTI tax rules and are not yet able to reasonably estimate the effect of this provision of the Tax Act or make an accounting policy election for the treatment of the GILTI tax. Therefore, we have not recorded any amounts related to potential GILTI tax in our financial statements and have not yet made a policy decision regarding whether to record deferred taxes on GILTI.

Quarterly Results of Operations and Other Data

The following table presents our quarterly consolidated results of operations and other data for each of the quarters presented, both in absolute dollars and as a percentage of revenue. This quarterly consolidated information has been prepared on the same basis as our audited consolidated financial statements and, in the opinion of management, the statement of operations data includes all adjustments, consisting of normal recurring adjustments, necessary for the fair presentation of the results of operations for these periods. You should read this table in conjunction with our audited consolidated financial statements and related notes located elsewhere in this Annual Report on Form 10-K. The results of operations for any quarter are not necessarily indicative of the results of operations for a full year or any future periods.

	Three Months Ended
	Dec 31,		Sept 30,		June 30,		Mar 31,		Dec 31,		Sept 30,		June 30,		Mar 31,
	2017		2017		2017		2017		2016		2016		2016		2016
	2018		2018		2018		2018		2017		2017		2017		2017
	(In thousands)
	(In thousands, except percentages and per share data)
Revenue	$	6872,~~339~~487	$	6471,~~742~~594	$	6169,~~409~~228	$	5059,~~235~~149	$	5768,~~367~~132	$	5564,~~185~~583	$	5361,~~215~~252	$	4350,~~035~~208
Gross margin		3437,~~681~~792		3337,~~222~~110		3136,~~416~~

Filing Compare · CONTROL4 CORP