What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-05-05 compared with 2020-11-05 · 367 added, 478 removed, 390 unchanged (68% of the section changed)

3 unchanged sentences

(in thousands, except share and per share data)

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Current assets:

27 unchanged sentences

Stockholders' equity:

Preferred stock—authorized 1,000,000 and 250,000 shares of $ 0.01 par value as of September 30, 2020 and December 31, 2019, respectively;

zero issued and outstanding.

Preferred stock—authorized 1,000,000 shares of $ 0.01 par value;

zero issued and outstanding as of March 31, 2021 and December 31, 2020.

Common stock—authorized 3,999,000,000 shares of $ 0.01 par value;

issued and outstanding shares of 770,723,162 and 753,622,044 as of September 30, 2020 and December 31, 2019, respectively

Class B common stock—authorized 100,000,000 and zero shares of $ 0.01 par value as of September 30, 2020 and December 31, 2019, respectively;

issued and outstanding shares of 54,744,525 and zero as of September 30, 2020 and December 31, 2019, respectively.

issued and outstanding shares of 774,884,351 and 771,013,638 as of March 31, 2021 and December 31, 2020, respectively.

Class B common stock—authorized 100,000,000 shares of $ 0.01 par value;

issued and outstanding shares of 54,744,525 as of March 31, 2021 and December 31, 2020.

Additional paid-in capital 6,644,332 6,640,763

7 unchanged sentences

(in thousands, except per share data)

For the Three Months Ended For the Nine Months Ended

September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

Three Months Ended

March 31, 2021 March 31, 2020

Monitoring and related services $ 1,062,766 $ 1,045,957

5 unchanged sentences

Merger, restructuring, integration, and other 20,507 108,794

Goodwill impairment — 45,482 — 45,482

Loss on sale of business ( 19 ) 55,489 738 55,489

Operating income (loss) 62,886 ( 51,234 ) 23,952 132,339

Operating loss ( 16,380 ) ( 89,356 )

Interest expense, net ( 47,724 ) ( 225,367 )

4 unchanged sentences

Net loss $ ( 47,894 ) $ ( 300,293 )

Net (loss) income per share - basic:

Common stock $ ( 0.15 ) $ ( 0.25 ) $ ( 0.68 ) $ ( 0.47 )

Class B common stock $ 0.05 $ — $ ( 0.10 ) $ —

Weighted-average shares outstanding - basic:

Common stock 760,913 739,852 760,203 748,500

Class B common stock 8,331 — 2,797 —

Net loss per share - diluted:

Net loss per share - basic and diluted:

Common stock $ ( 0.06 ) $ ( 0.40 )

Class B common stock $ ( 0.06 ) $ —

Weighted-average shares outstanding - diluted:

Weighted-average shares outstanding - basic and diluted:

Common stock 762,704 759,092

4 unchanged sentences

(in thousands)

For the Three Months Ended For the Nine Months Ended

September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

Three Months Ended

March 31, 2021 March 31, 2020

Net loss $ ( 47,894 ) $ ( 300,293 )

1 unchanged sentence

Cash flow hedges 11,666 ( 96,063 )

Foreign currency translation — ( 6,340 ) — 13,711

Defined benefit pension plans 846 7

5 unchanged sentences

(in thousands)

For the Three Months Ended September 30, 2020 For the Three Months Ended September 30, 2019

Number of Common Shares Number of Class B Common Shares Common Stock Class B Common Stock Additional

Capital Accumulated

Deficit Accumulated

Comprehensive

Stockholders'

Equity Number of Common Shares Common Stock Additional

Capital Accumulated

Deficit Accumulated

Comprehensive

Stockholders'

Three Months Ended March 31, 2021

Number of Common Shares Number of Class B Common Shares Common Stock Class B Common Stock Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Stockholders' Equity

Balances at beginning of period 771,014 54,745 $ 7,710 $ 547 $ 6,640,763 $ ( 3,491,069 ) $ ( 118,615 ) $ 3,039,336

Net loss — — — — — ( 47,894 ) — ( 47,894 )

comprehensive

income (loss),

— — — — — — 11,591 11,591 — — — — ( 12,233 ) ( 12,233 )

stock, net of

— 54,745 — 547 447,088 — — 447,635 — — — — — —

1 — — — 4 ( 28,963 ) — ( 28,959 ) 3,740 37 22,526 ( 26,253 ) — ( 3,690 )

— — — — 26,431 — — 26,431 — — 18,876 — — 18,876

Other 293 — 3 — 1,208 ( 450 ) — 761 ( 68 ) ( 1 ) 196 ( 193 ) — 2

Other comprehensive income, net of tax — — — — — — 12,512 12,512

Dividends, including dividends reinvested in common stock — — — — 4 ( 29,136 ) — ( 29,132 )

Share-based compensation expense — — — — 16,019 — — 16,019

Transactions related to employee share-based compensation plans and other 3,870 — 39 — ( 12,454 ) ( 516 ) ( 12,931 )

Balances at end of period 774,884 54,745 $ 7,749 $ 547 $ 6,644,332 $ ( 3,568,615 ) $ ( 106,103 ) $ 2,977,910

See Notes to Condensed Consolidated Financial Statements

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

For the Nine Months Ended September 30, 2020 For the Nine Months Ended September 30, 2019

Number of Common Shares Number of Class B Common Shares Common Stock Class B Common Stock Additional

Capital Accumulated

Deficit Accumulated

Comprehensive

Stockholders'

Equity Number of Common Shares Common Stock Additional

Capital Accumulated

Deficit Accumulated

Comprehensive

Stockholders'

Three Months Ended March 31, 2020

Balances at beginning of period 753,622 — $ 7,536 $ — $ 5,977,402 $ ( 2,742,193 ) $ ( 58,376 ) $ 3,184,369

— — — — — ( 2,157 ) — ( 2,157 ) — — — — — —

Adoption of accounting standard, net of tax — — — — — ( 2,157 ) — ( 2,157 )

Net loss — — — — — ( 300,293 ) — ( 300,293 )

comprehensive

— — — — — — ( 75,912 ) ( 75,912 ) — — — — ( 42,393 ) ( 42,393 )

common stock,

net of related

16,279 54,745 163 547 560,766 — — 561,476 — — — — — —

( 1 ) — — — ( 4 ) — — ( 4 ) ( 23,883 ) ( 239 ) ( 149,629 ) — — ( 149,868 )

2 — — — 11 ( 82,847 ) — ( 82,836 ) 7,147 71 44,933 ( 79,346 ) — ( 34,342 )

— — — — 74,758 — — 74,758 — — 65,126 — — 65,126

Other 821 — 8 — 933 ( 2,027 ) ( 1,086 ) ( 113 ) ( 1 ) 397 ( 383 ) — 13

Other comprehensive loss, net of tax — — — — — — ( 96,056 ) ( 96,056 )

Issuance of common stock 16,279 — 163 — 113,678 — — 113,841

Dividends, including dividends reinvested in common stock — — — — 3 ( 27,117 ) — ( 27,114 )

Share-based compensation expense — — — — 23,499 — — 23,499

Transactions related to employee share-based compensation plans and other 247 — 2 — ( 173 ) ( 1,092 ) — ( 1,263 )

Balances at end of period 770,148 — $ 7,701 $ — $ 6,114,409 $ ( 3,072,852 ) $ ( 154,432 ) $ 2,894,826

3 unchanged sentences

(in thousands)

For the Nine Months Ended

September 30, 2020 September 30, 2019

Three Months Ended

March 31, 2021 March 31, 2020

Cash flows from operating activities:

8 unchanged sentences

Loss on extinguishment of debt 156 65,843

Goodwill impairment — 45,482

Loss on sale of business 738 55,489

Unrealized loss on interest rate swap contracts 89,589 9,380

Intangible asset impairments 17,883 —

Unrealized (gain) loss on interest rate swap contracts ( 106,517 ) 69,563

Other non-cash items, net 38,815 48,656

Changes in operating assets and liabilities, net of the effects of acquisitions and dispositions:

Changes in operating assets and liabilities, net of the effects of acquisitions:

Deferred subscriber acquisition costs ( 67,402 ) ( 48,194 )

7 unchanged sentences

Acquisition of businesses, net of cash acquired ( 15,909 ) ( 179,569 )

Sale of business, net of cash sold ( 2,448 ) —

Other investing, net 1,408 2,782

1 unchanged sentence

Cash flows from financing activities:

Proceeds from issuance of common stock 450,000 —

Proceeds from long-term borrowings 10,729 1,640,000

3 unchanged sentences

Dividends on common stock ( 28,980 ) ( 26,291 )

Repurchases of common stock ( 4 ) ( 149,868 )

Deferred financing costs ( 114 ) ( 14,139 )

Other financing, net ( 26,686 ) ( 3,915 )

Net cash provided by (used in) financing activities 249,156 ( 509,716 )

Effect of currency translation on cash — 821

Net increase (decrease) in cash and cash equivalents and restricted cash and cash equivalents 442,150 ( 206,567 )

Cash and cash equivalents and restricted cash and cash equivalents at beginning of period 48,736 367,162

Cash and cash equivalents and restricted cash and cash equivalents at end of period $ 490,886 $ 160,595

Net cash (used in) provided by financing activities ( 40,685 ) 157,611

Net (decrease) increase in cash and cash equivalents and restricted cash and restricted cash equivalents ( 80,463 ) 69,405

Cash and cash equivalents and restricted cash and restricted cash equivalents at beginning of period 207,747 48,736

Cash and cash equivalents and restricted cash and restricted cash equivalents at end of period $ 127,284 $ 118,141

Supplemental schedule of non-cash investing and financing activities:

Issuance of shares in lieu of cash dividend $ 11 $ 45,004

Issuance of shares for acquisition of business $ — $ 113,841

4 unchanged sentences

Organization and Business

ADT Inc., together with its wholly-owned subsidiaries (collectively, the “Company”), is a leading provider of security, automation, and smart home solutions serving consumer and business customers in the United States (“U.S.”).

ADT Inc., together with its wholly-owned subsidiaries (collectively, the “Company”), is a leading provider of security, automation, and smart home solutions serving consumers and businesses in the United States (“U.S.”).

was incorporated in the State of Delaware in May 2015 as a holding company with no assets or liabilities.

4 unchanged sentences

The Company primarily conducts business under the ADT brand name.

In January 2018, the Company completed an initial public offering (“IPO”) and its common stock began trading on the New York Stock Exchange under the symbol “ADT.”

In January 2018, the Company completed an initial public offering (“IPO”) and its common stock (“Common Stock”) began trading on the New York Stock Exchange under the symbol “ADT.”

In September 2020, the Company issued and sold 54,744,525 shares of Class B common stock, par value of $0.01 per share (“Class B Common Stock”), for an aggregate purchase price of $450 million to Google LLC (“Google”) in a private placement pursuant to a securities purchase agreement dated July 31, 2020 (the “Securities Purchase Agreement”).

The Company is majority owned by Prime Security Services TopCo Parent, L.P.

1 unchanged sentence

Ultimate Parent is majority owned by Apollo Investment Fund VIII, L.P.

and its related funds that are directly or indirectly managed by Apollo Global Management, Inc.

and its related funds that are directly or indirectly managed by affiliates of Apollo Global Management, Inc.

(together with its subsidiaries and affiliates, “Apollo” or the “Sponsor”).

3 unchanged sentences

Actual results could differ materially from these estimates under different assumptions or market conditions.

COVID-19 Pandemic

During March 2020, the World Health Organization declared the outbreak of a novel coronavirus as a pandemic (the “COVID-19 Pandemic”), which has become increasingly widespread in the U.S.

Containment efforts and responses to the COVID-19 Pandemic have varied by individuals, businesses, and state and local municipalities, and in certain areas of the U.S., initial and precautionary measures helped mitigate the spread of the coronavirus.

However, subsequent easing of such measures resulted in the re-emergence of the coronavirus.

The COVID-19 Pandemic has had a notable adverse impact on general economic conditions, including but not limited to the temporary closures of many businesses, increased governmental regulations, and reduced consumer spending due to significant unemployment and other effects attributable to the COVID-19 Pandemic.

In order to continue to service customers, the Company has adjusted and is continuously evolving certain aspects of its operations to protect employees and customers, which includes (i) detailed protocols for infectious disease safety for employees, (ii) the implementation of daily wellness checks for employees, and (iii) the implementation of work from home actions, including the majority of the Company’s call center professionals.

The Company considered the emergence and pervasive economic impact of the COVID-19 Pandemic in its assessment of its financial position, results of operations, cash flows, and certain accounting estimates as of and for the three and nine months ended September 30, 2020.

Additional information on the impacted estimates is included in the respective footnotes that follow.

Due to the evolving and uncertain nature of the COVID-19 Pandemic, it is possible that the effects of the COVID-19 Pandemic could materially impact the Company’s estimates and condensed consolidated financial statements in future reporting periods.

Basis of Presentation and Consolidation

The condensed consolidated financial statements included herein are unaudited, but in the opinion of management, such financial statements include all adjustments, consisting of normal recurring adjustments, necessary to summarize fairly the Company’s financial position, results of operations, and cash flows for the interim periods presented.

The interim results reported in these condensed consolidated financial statements should not be taken as indicative of results that may be expected for future interim periods or the full year.

For a more comprehensive understanding of the Company and its interim results, these condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2019 (the “2019 Annual

Report”), which was filed with the U.S.

Securities and Exchange Commission (the “SEC”) on March 10, 2020.

The Company’s accounting policies used in the preparation of these condensed consolidated financial statements do not differ from those used for the annual consolidated financial statements, unless otherwise noted.

Securities and Exchange Commission (the “SEC”) on February 25, 2021.

The Company’s accounting policies used in the preparation of these condensed consolidated financial statements do not differ from those used in the annual consolidated financial statements, unless otherwise noted.

The Condensed Consolidated Balance Sheet as of December 31, 2020 included herein was derived from the audited consolidated financial statements as of that date but does not include all the footnote disclosures from the annual consolidated financial statements.

4 unchanged sentences

Certain prior period amounts have been reclassified to conform with the current period presentation.

The Company has a single operating and reportable segment based on the manner in which the Chief Executive Officer, who is the chief operating decision maker, evaluates performance and makes decisions about how to allocate resources.

Cash and Cash Equivalents and Restricted Cash and Cash Equivalents

Segment Change

Effective in the first quarter of 2021, the manner in which the Company’s Chief Executive Officer, who is the chief operating decision maker (the “CODM”), evaluates performance and makes decisions about how to allocate resources changed.

Therefore, the Company now reports results in two operating and reportable segments, Consumer and Small Business (“CSB”) and Commercial, rather than a single operating and reportable segment.

Where applicable, prior periods have been retrospectively adjusted to reflect the new operating and reportable segment structure.

The accounting policies of the Company’s reportable segments are the same as those for the consolidated financial statements.

The Company organizes its segments based on customer type as follows:

• Consumer and Small Business (CSB) - Customers in the CSB segment are comprised of residential homeowners, small business operators, and other individual consumers.

The CSB segment primarily includes (i) revenue and operating costs from the sale, installation, servicing, and monitoring of integrated security and automation systems, as well as other offerings such as mobile security and home health solutions;

(ii) other operating costs associated with support functions related to these operations;

and (iii) general corporate costs and other income and expense items not included in the Commercial segment.

Results for the Company’s Canadian operations prior to its sale in the fourth quarter of 2019 are included in the CSB segment based on the primary customer market served in Canada.

• Commercial - Customers in the Commercial segment are comprised of larger businesses with more expansive facilities (typically larger than 10,000 square feet) and/or multi-site operations, which often require more sophisticated integrated solutions.

The Commercial segment primarily includes (i) revenue and operating costs from the sale, installation, servicing, and monitoring of integrated security and automation systems, fire detection and suppression systems, and other related offerings;

(ii) other operating costs associated with support functions of these operations;

and (iii) dedicated corporate and other costs.

Refer to Note 13 “Segment Information” for additional information on the Company’s segments.

COVID-19 Pandemic

During March 2020, the World Health Organization declared the outbreak of a novel coronavirus as a pandemic (the “COVID-19 Pandemic”), which has become widespread in the U.S.

The COVID-19 Pandemic has had a notable adverse impact on general economic conditions, including the temporary closures of many businesses, increased governmental regulations, and reduced consumer spending due to significant unemployment and other effects attributable to the COVID-19 Pandemic.

In order to continue to both protect its employees and serve its customers, the Company has adjusted and is continuously evolving certain aspects of its operations, which includes (i) detailed protocols for infectious disease safety for employees, (ii) daily wellness checks for employees, and (iii) certain work from home actions, including for the majority of the Company’s call center professionals.

The Company considered the on-going and pervasive economic impact of the COVID-19 Pandemic in its assessment of its financial position, results of operations, cash flows, and certain accounting estimates as of and for the three months ended March 31, 2021.

Cash and Cash Equivalents and Restricted Cash and Restricted Cash Equivalents

All highly liquid investments with original maturities of three months or less from the time of purchase are considered to be cash equivalents.

Restricted cash and cash equivalents are cash and cash equivalents that are restricted for a specific purpose and cannot be included in the general cash and cash equivalents account.

Restricted cash and cash equivalents are reflected in prepaid expenses and other current assets in the Condensed Consolidated Balance Sheets.

The following table provides a reconciliation of the amount of cash and cash equivalents and restricted cash and cash equivalents reported in the Condensed Consolidated Balance Sheets to the total of the same of such amounts shown in the Condensed Consolidated Statements of Cash Flows:

(in thousands) September 30, 2020 December 31, 2019

Restricted cash and restricted cash equivalents are cash and cash equivalents that are restricted for a specific purpose and cannot be included in the general cash and cash equivalents account.

Restricted cash and restricted cash equivalents are reflected in prepaid expenses and other current assets in the Condensed Consolidated Balance Sheets.

The following table presents a reconciliation of the amount of cash and cash equivalents and restricted cash and restricted cash equivalents reported in the Condensed Consolidated Balance Sheets to the total of the same of such amounts shown in the Condensed Consolidated Statements of Cash Flows:

(in thousands) March 31, 2021 December 31, 2020

Cash and cash equivalents $ 122,554 $ 204,998

Restricted cash and cash equivalents in prepaid expenses and other current assets 1,453 —

Cash and cash equivalents and restricted cash and cash equivalents at end of period $ 490,886 $ 48,736

Restricted cash and restricted cash equivalents 4,730 2,749

Cash and cash equivalents and restricted cash and restricted cash equivalents at end of period $ 127,284 $ 207,747

Subscriber System Assets, net and Deferred Subscriber Acquisition Costs, net

4 unchanged sentences

Upon customer termination, the Company may retrieve such assets.

Depreciation expense relating to subscriber system assets is included in depreciation and intangible asset amortization in the Condensed Consolidated Statements of Operations and was $ 120 million and $ 142 million for the three months ended September 30, 2020 and 2019, respectively, and $ 380 million and $ 423 million for the nine months ended September 30, 2020 and 2019, respectively.

The gross carrying amount, accumulated depreciation, and net carrying amount of subscriber system assets as of September 30, 2020 and December 31, 2019 were as follows:

(in thousands) September 30, 2020 December 31, 2019

Depreciation expense relating to subscriber system assets, which is included in depreciation and intangible asset amortization in the Condensed Consolidated Statements of Operations, was $ 123 million and $ 134 million for the three months ended March 31, 2021 and 2020, respectively.

The following table presents the gross carrying amount, accumulated depreciation, and net carrying amount of subscriber system assets:

(in thousands) March 31, 2021 December 31, 2020

Gross carrying amount $ 4,964,620 $ 4,815,286

2 unchanged sentences

Deferred subscriber acquisition costs represent incremental selling expenses (primarily commissions) related to acquiring customers.

Amortization expense relating to deferred subscriber acquisition costs included in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations was $ 25 million and $ 21 million for the three months ended September 30, 2020 and 2019, respectively, and $ 70 million and $ 59 million for the nine months ended September 30, 2020 and 2019, respectively.

Amortization expense relating to deferred subscriber acquisition costs included in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations was $ 29 million and $ 23 million for the three months ended March 31, 2021 and 2020, respectively.

Subscriber system assets and any related deferred subscriber acquisition costs resulting from customer acquisitions are accounted for on a pooled basis based on the month and year of acquisition.

1 unchanged sentence

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following as of September 30, 2020 and December 31, 2019:

(in thousands) September 30, 2020 December 31, 2019

Accrued expenses and other current liabilities consisted of the following:

(in thousands) March 31, 2021 December 31, 2020

Accrued interest $ 71,011 $ 123,935

Payroll-related accruals 103,453 99,771

Operating lease liabilities 31,104 30,689

Fair value of interest rate swaps 64,864 65,462

Other accrued liabilities 260,140 264,294

1 unchanged sentence

Radio Conversion Costs

In 2019, the providers of 3G and Code-Division Multiple Access (“CDMA”) cellular networks notified the Company that they will be retiring their 3G and CDMA networks during 2022.

Accordingly, during 2019 the Company commenced a program to replace the 3G and CDMA cellular equipment used in many of its security systems.

The Company estimates the range of net costs for this replacement program at $ 200 million to $ 325 million through 2022.

The Company expects to incur approximately $ 50 million to $ 75 million of net costs during 2020.

These ranges are net of any revenue the Company collects from customers associated with these radio replacements and cellular network conversions.

During 2019, the Company commenced a program to replace the 3G and Code-Division Multiple Access (“CDMA”) cellular equipment used in many of its security systems as a result of the 3G and CDMA cellular network providers notifying the Company that they will be retiring their 3G and CDMA networks during 2022.

The Company continues to estimate the range of net costs over the course of this program at $ 225 million to $ 300 million, which consists of costs, net of any revenue the Company collects from customers, associated with these radio replacements and cellular network conversions.

From inception of this program through March 31, 2021, the Company has incurred $ 136 million of net costs, of which $ 59 million has been incurred during the three months ended March 31, 2021.

The Company seeks to minimize these costs by converting customers during routine service visits whenever possible.

The replacement program and pace of replacement are subject to change and may be influenced by the Company’s ability to access customer sites due to the COVID-19 Pandemic, cost-sharing opportunities with suppliers, carriers, and customers, as well as new and innovative technologies.

Radio conversion revenue associated with the replacement program is included in monitoring and related services revenue in the Condensed Consolidated Statement of Operations while radio conversion costs are included in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations.

During the three months ended September 30, 2020 and 2019, the Company incurred $ 21 million and $ 12 million of radio conversion costs, respectively, and recognized $ 8 million and $ 1 million of incremental radio conversion revenue, respectively.

During the nine months ended September 30, 2020 and 2019, the Company incurred $ 50 million and $ 14 million of radio conversion costs, respectively, and recognized $ 26 million and $ 1 million of incremental radio conversion revenue, respectively.

The replacement program and pace of replacement are subject to change and may be influenced by the Company’s ability to access customer sites due to the COVID-19 Pandemic;

cost-sharing opportunities with suppliers, carriers, and customers;

and the extent to which the Company is able to implement its Cell Bounce solution, as described below.

Given the current network retirement dates, the Company expects most of the remaining net costs to be incurred during 2021 and expects to continue collecting a portion of the incremental revenue thereafter.

During November 2020, the Company acquired Cell Bounce, a technology company with proprietary radio conversion technology in the form of a user-installable device, which was intended to facilitate the transition of customers on 3G networks in a cost efficient and timely manner.

However, as a result of recent worldwide shortages for certain electronic components, the Company may be unable to produce the expected volume of Cell Bounce product in order to achieve the expected benefits.

As a result, the Company expects to continue to replace 3G radios primarily using traditional methods and to utilize Cell Bounce for any customers the Company is unable to upgrade through these traditional methods to the extent possible.

During the three months ended March 31, 2021 and 2020, the Company incurred radio conversion costs associated with these replacement programs and cellular network conversions of $ 70 million and $ 16 million, respectively, and recognized incremental radio conversion revenue of $ 11 million and $ 9 million, respectively.

Radio conversion costs are included in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations.

Radio conversion revenue is included in monitoring and related services revenue in the Condensed Consolidated Statement of Operations.

Fair Value of Financial Instruments

The Company’s financial instruments primarily consist of cash and cash equivalents, restricted cash and cash equivalents, accounts receivable, retail installment contract receivables, accounts payable, debt, and derivative financial instruments.

The Company’s financial instruments primarily consist of cash and cash equivalents, restricted cash and restricted cash equivalents, accounts receivable, retail installment contract receivables, accounts payable, debt, and derivative financial instruments.

Due to their short-term and/or liquid nature, the fair values of cash, restricted cash, accounts receivable, and accounts payable approximate their respective carrying amounts .

Cash Equivalents - Included in cash and cash equivalents are investments in money market mutual funds, which were $ 264 million as of September 30, 2020.

The Company had no cash equivalents as of December 31, 2019.

These investments are classified as a Level 1 fair value measurement, which represent unadjusted quoted prices in active markets for identical assets or liabilities.

Retail Installment Contract Receivables - The fair value of the Company’s retail installment contract receivables was determined using a discounted cash flow model.

Cash Equivalents - Included in cash and cash equivalents are investments in money market mutual funds, which totaled $ 41 million and $ 143 million as of March 31, 2021 and December 31, 2020, respectively.

These investments are classified as Level 1 fair value measurements, which represent unadjusted quoted prices in active markets for identical assets or liabilities.

Retail Installment Contract Receivables, net - The fair value of the Company’s retail installment contract receivables was determined using a discounted cash flow model.

The resulting fair value is classified as a Level 3 fair value measurement.

The following table presents the carrying amount and fair value of retail installment contract receivables as of the periods presented below:

September 30, 2020 January 1, 2020 (1)

The following table presents the net carrying amount and fair value of retail installment contract receivables:

March 31, 2021 December 31, 2020

(in thousands) Carrying

1 unchanged sentence

Retail installment contract receivables, net $ 174,870 $ 136,400 $ 141,591 $ 112,676

________________

(1) Balances reflected are subsequent to the adoption of CECL (as defined below) on January 1, 2020.

Long-Term Debt Instruments - The fair value of the Company’s debt instruments was determined using broker-quoted market prices, which represent prices based on quoted prices for similar assets or liabilities as well as other observable market data.

The carrying amount of debt outstanding, if any, under the Company’s revolving credit facility and receivables facility approximate fair value as interest rates on these borrowings approximate current market rates.

The resulting fair value is classified as a Level 2 fair value measurement.

The following table presents the carrying amount and fair value of long-term debt instruments as of the periods presented below:

September 30, 2020 December 31, 2019

The carrying amounts of debt outstanding, if any, under the Company’s revolving credit facility and receivables facility approximate fair values as interest rates on these borrowings approximate current market rates.

The resulting fair values are classified as Level 2 fair value measurements.

The following table presents the carrying amount and fair value of the Company’s long-term debt instruments subject to fair value disclosures:

March 31, 2021 December 31, 2020

(in thousands) Carrying

Value Carrying

Debt instruments, excluding finance lease obligations $ 9,681,595 $ 10,137,127 $ 9,617,491 $ 10,177,751

Long-term debt instruments, excluding finance lease obligations $ 9,463,947 $ 9,971,382 $ 9,431,216 $ 10,127,291

Derivative Financial Instruments - Derivative financial instruments are reported at fair value as either assets or liabilities in the Condensed Consolidated Balance Sheets.

2 unchanged sentences

In the normal course of business, the Company is liable for contract completion and product performance.

The Company’s guarantees primarily relate to standby letters of credit related to its insurance programs and totaled $ 83 million and $ 47 million as of September 30, 2020 and December 31, 2019, respectively.

The Company’s guarantees primarily relate to standby letters of credit related to its insurance programs and totaled $ 76 million and $ 83 million as of March 31, 2021 and December 31, 2020, respectively.

The Company does not believe such obligations will materially affect its financial position, results of operations, or cash flows.

Recently Adopted Accounting Pronouncements

Financial Accounting Standards Board Accounting Standards Update (“ASU”) 2016-13, Measurement of Credit Losses on Financial Instrument , and related amendments, introduces new guidance which makes substantive changes to the accounting for credit losses.

This guidance introduces the current expected credit losses (“CECL”) model which applies to financial assets subject to credit losses and measured at amortized cost, as well as certain off-balance sheet credit exposures.

The CECL model requires an entity to estimate credit losses expected over the life of an exposure, considering information about historical events, current conditions, and reasonable and supportable forecasts and is generally expected to result in earlier recognition of credit losses.

The Company adopted this guidance as of January 1, 2020 using the modified retrospective approach and recognized a cumulative effect adjustment to the opening balance of accumulated deficit with no restatement of comparative periods.

The impact of adoption was not material.

ASU 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract , aligns the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is classified as a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.

The Company adopted the guidance as of January 1, 2020 on a prospective basis, which will result in capitalized implementation costs being classified in the same line item as the fees associated with the cloud computing service agreement in the Condensed Consolidated Balance Sheets, Statements of Operations, and Cash Flows.

The impact of adoption was not material.

ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting , provides optional guidance for a limited period of time to ease the potential burden of accounting for reference rate reform.

The guidance was effective for the Company beginning on March 12, 2020 and it will apply the amendments prospectively through December 31, 2022.

The impact of adoption was not material.

Recently Issued Accounting Pronouncements

ASU 2020-06, Debt with Conversion and Other Options and Derivatives and Hedging - Contracts in Entity’s Own Equity , provides guidance to ease the potential burden of accounting for convertible instruments, derivatives related to an entity’s own equity, and the related earnings per share considerations.

This guidance is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.

Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.

The Company intends to early adopt this guidance in the first quarter of 2021 and the impact of adoption is not anticipated to be material.

Financial Accounting Standards Board Accounting Standards Update (“ASU”) 2020-06, Debt with Conversion and Other Options and Derivatives and Hedging - Contracts in Entity’s Own Equity , provides guidance to ease the potential burden of accounting for convertible instruments, derivatives related to an entity’s own equity, and the related earnings per share considerations.

The Company early adopted the guidance as of January 1, 2021.

The impact from adoption was not material.

ASU 2021-01, Reference Rate Reform (Topic 848) :

Facilitation of the Effects of Reference Rate Reform on Financial Reporting amends ASU 2020-04, which was disclosed in the Company’s 2020 Annual Report.

ASU 2021-01 clarifies the scope and guidance of Topic 848 and allows derivatives impacted by the reference rate reform to qualify for certain optional expedients and exceptions for contract modifications and hedge accounting.

The guidance is optional and is effective for a limited period of time through December 31, 2022.

As of March 31, 2021, this guidance had no impact on the Condensed Consolidated Financial Statements.

The Company will continue to evaluate this guidance.

Revenue and Receivables

The Company generates revenue primarily through contractual monthly recurring fees received for monitoring and related services provided to customers.

In transactions in which the Company provides monitoring and related services but retains ownership of the security system, the Company’s performance obligations primarily include monitoring, related services (such as maintenance agreements), and a material right associated with the non-refundable fees received in connection with the initiation of a monitoring contract (referred to as deferred subscriber acquisition revenue) that the customer will not need to pay upon a renewal of the contract.

In transactions in which the Company provides monitoring and related services but retains ownership of the security system, the Company’s performance obligations primarily include monitoring, related services (such as maintenance agreements), and a material right associated with the one-time non-refundable fees received in connection with the initiation of a monitoring contract that the customer will not be required to pay again upon a renewal of the contract, which is referred to as deferred subscriber acquisition revenue.

The portion of the transaction price associated with monitoring and related services revenue is recognized when the services are provided to the customer and is reflected in monitoring and related services revenue in the Condensed Consolidated Statements of Operations.

1 unchanged sentence

Deferred subscriber acquisition revenue is amortized on a pooled basis into installation and other revenue in the Condensed Consolidated Statements of Operations over the estimated life of the customer relationship using an accelerated method consistent with the amortization of subscriber system assets and deferred subscriber acquisition costs associated with the transaction.

Amortization of deferred subscriber acquisition revenue was $ 31 million and $ 28 million for the three months ended September 30, 2020 and 2019, respectively, and $ 90 million and $ 79 million for the nine months ended September 30, 2020 and 2019, respectively.

In transactions involving a security system that is sold outright to the customer, the Company’s performance obligations generally include monitoring, related services, and the sale and installation of the security system.

Amortization of deferred subscriber acquisition revenue was $ 37 million and $ 29 million for the three months ended March 31, 2021 and 2020, respectively.

In transactions involving a security or fire safety system that is sold outright to the customer, the Company’s performance obligations generally include the sale and installation of the system as well as any monitoring and related services.

For such arrangements, the Company allocates a portion of the transaction price to each performance obligation based on relative standalone selling price, which is determined using observable internal or external pricing and profitability metrics.

Revenue associated with the sale and installation of a security system is recognized either at a point in time or over time based upon the nature of the transaction and contractual terms and is reflected in installation and other revenue in the Condensed Consolidated Statements of Operations.

Revenue associated with monitoring and related services is recognized as those services are provided and is reflected in monitoring and related services revenue in the Condensed Consolidated Statements of Operations.

Revenue associated with the sale and installation of a system is recognized either at a point in time or over time based upon the nature of the transaction and contractual terms and is reflected in installation and other revenue in the Condensed Consolidated Statements of Operations.

For revenue recognized over time, progress toward complete satisfaction of the performance obligation is primarily measured using a cost-to-cost measure of progress method.

The cost input that drives revenue recognition for contracts where revenue is recognized over time is based primarily on contract cost incurred to date compared to total estimated contract cost.

This measure of progress method includes forecasts based on the best information available and reflects the Company’s judgment to faithfully depict the value of the services transferred to the customer.

The portion of the transaction price associated with monitoring and related services revenue is recognized when services are provided to the customer and is reflected in monitoring and related services revenue in the Condensed Consolidated Statements of Operations.

Revenue from product sales related to the sale and installation of security and fire safety systems was $ 203 million and $ 293 million for the three months ended March 31, 2021 and 2020, respectively.

Cost of revenue from product sales related to the sale and installation of security and fire safety systems was $ 160 million and $ 212 million for the three months ended March 31, 2021 and 2020, respectively.

Early termination of the contract by the customer results in a termination charge in accordance with the terms of the contract.

Contract termination charges are recognized in revenue when collectability is probable and are reflected in monitoring and related services revenue in the Condensed Consolidated Statements of Operations.

The Company records revenue in the Condensed Consolidated Statements of Operations net of sales and other taxes.

Amounts collected from customers for sales and other taxes are reported as a liability net of the related amounts remitted.

Customer billings for services not yet rendered are deferred and recognized as revenue as services are provided.

These fees are recorded as current deferred revenue in the Condensed Consolidated Balance Sheets as the Company expects to satisfy any remaining performance obligations, as well as recognize the related revenue, within the next twelve months.

Accordingly, the Company has applied the practical expedient regarding deferred revenue to exclude the value of remaining performance obligations if (i) the contract has an original expected term of one year or less or (ii) the Company recognizes revenue in proportion to the amount it has the right to invoice for services performed.

The following table sets forth the Company’s revenue disaggregated by source:

For the Three Months Ended For the Nine Months Ended

(in thousands) September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

Accordingly, the Company has applied the practical expedient regarding deferred revenue to exclude the value of remaining performance

obligations if (i) the contract has an original expected term of one year or less or (ii) the Company recognizes revenue in proportion to the amount it has the right to invoice for services performed.

The following table presents the Company’s disaggregated revenue:

Three Months Ended

(in thousands) March 31, 2021 March 31, 2020

Monitoring and related services $ 951,248 $ 938,032

Installation and other 87,357 173,135

Total CSB 1,038,605 1,111,167

Monitoring and related services 111,518 107,925

Installation and other (1)

154,581 150,660

Total Commercial 266,099 258,585

Total revenue $ 1,304,704 $ 1,369,752

Equipment Ownership Model Change

During February 2020, the Company launched a new revenue model initiative for certain residential customers which revised the amount and nature of fees due at installation, introduced a 60 month monitoring contract option, and introduced a new retail installment contract which allows qualifying residential customers to repay the fees due at installation over the course of a 24, 36, or 60 month interest-free period.

________________

(1) Approximately half of installation and other revenue generated by the Commercial segment is recognized over time.

Revenue Model Initiative and Equipment Ownership Model Change

During February 2020, the Company launched a new revenue model initiative for certain residential customers, which (i) revised the amount and nature of fees due at installation, (ii) introduced a 60-month monitoring contract option, and (iii) introduced a new retail installment contract option that allows qualifying residential customers to repay the fees due at installation over a 24-, 36-, or 60-month interest-free period.

Due to the requirements of the Company’s initial third-party consumer financing program, the Company also transitioned its security system ownership model from a predominately Company-owned model to a predominately customer-owned model (the “Equipment Ownership Model Change”).

During March 2020, the Company entered into an uncommitted receivables securitization financing agreement (the “Receivables Facility”).

Under the terms of the Receivables Facility, the Company may receive up to $ 200 million of financing secured by retail installment contract receivables from transactions involving security systems that were sold under a customer-owned model.

During April 2020, the Company amended the Receivables Facility to also permit financing secured by retail installment contract receivables from transactions occurring under the Company-owned model.

During May 2020, the Company started to transition its security system ownership model back to a predominately Company-owned model as a result of this amendment.

Accounts Receivable

During March 2020, the Company entered into an uncommitted receivables securitization financing agreement (the “Receivables Facility”), which allowed the Company to receive financing secured by retail installment contract receivables from transactions under a customer-owned model.

During April 2020, the Company amended the Receivables Facility to also permit financing secured by retail installment contract receivables from transactions occurring under a Company-owned model.

As a result, the Company started to transition its security system ownership model to a predominately Company-owned model in May 2020.

Refer to Note 6 “Debt” for further discussion regarding the Receivables Facility.

Accounts Receivable, net

Accounts receivable represent unconditional rights to consideration due from customers in the ordinary course of business and are generally due in one year or less.

3 unchanged sentences

For each pool of customers, the allowance for credit losses is estimated based on the delinquency status of the underlying receivables and the related historical loss experience, as adjusted for current and expected future conditions, if applicable.

The allowance for credit losses was not material for the individual pools of customers for the periods presented.

The changes in the allowance for credit losses during the nine months ended September 30, 2020 were as follows:

(in thousands)

Balance as of January 1, 2020 (1)

Provision for credit losses 63,231

Write-offs, net of recoveries (2)

Balance as of September 30, 2020 $ 64,478

________________

(1) Balance reflected is subsequent to the adoption of CECL on January 1, 2020.

(2) The amount of recoveries was not material for the period presented, as such, the Company presented write-offs, net of recoveries.

Retail Installment Contract Receivables

During February 2020, the Company launched a new retail installment contract which allows qualifying residential customers to repay the fees due at installation over a 24, 36, or 60 month interest-free period.

The financing component of a retail installment contract receivable is not significant.

Retail installment contracts are available for residential transactions occurring under either a Company-owned model or a customer-owned model.

The allowance for the individual pools of customers was not material.

During the three months ended March 31, 2021, the provision for credit losses, write-offs, and recoveries were not material.

Retail Installment Contract Receivables, net

During February 2020, the Company introduced a new retail installment contract option that allows qualifying residential customers to repay the fees due at installation over a 24-, 36-, or 60-month interest-free period.

The financing component of the Company’s retail installment contract receivables is not significant.

Retail installment contracts are available for residential transactions occurring under both Company-owned and customer-owned models.

When originating a retail installment contract, the Company utilizes external credit scores to assess credit quality of a customer and to determine eligibility for the retail installment contract.

1 unchanged sentence

Subsequent to origination, the Company monitors the delinquency status of retail installment contract receivables as the key credit quality indicator.

As of September 30, 2020, the amount of current and delinquent billed retail installment contract receivables were not material.

As of March 31, 2021, the current and delinquent billed retail installment contract receivables were not material.

Retail installment contract receivables are recorded at amortized cost less an allowance for credit losses that are not expected to be recovered.

The allowance for credit losses is recognized at inception and is reassessed each reporting period.

The allowance for credit losses is recognized at inception and reassessed each reporting period.

The allowance for credit losses on retail installment contract receivables was not material for the periods presented.

The following is a summary of unbilled retail installment contract receivables, net, recognized in the Condensed Consolidated Balance Sheets as of the periods presented below:

(in thousands) September 30, 2020 January 1, 2020 (1)

The following table presents unbilled retail installment contract receivables, net, recognized in the Condensed Consolidated Balance Sheets:

(in thousands) March 31, 2021 December 31, 2020

Retail installment contract receivables, gross $ 178,077 $ 145,957

5 unchanged sentences

Retail installment contract receivables, net $ 174,870 $ 141,591

________________

(1) Balances reflected are subsequent to the adoption of CECL on January 1, 2020.

As of September 30, 2020, $ 56 million of the Company’s retail installment contract receivables, net, were used as collateral for borrowings under the Receivables Facility.

Refer to Note 6 “Debt” for further discussion.

Contract Assets

Contract assets represent rights to consideration in which the Company has transferred goods or services to the customer in the ordinary course of business, however, the Company does not have an unconditional right to such consideration.

As of March 31, 2021 and December 31, 2020, retail installment contract receivables, net, used as collateral for borrowings under the Receivables Facility were $ 143 million and $ 109 million, respectively.

Contract Assets, net

Contract assets are recorded when the Company has transferred goods or services to the customer in the ordinary course of business but does not have an unconditional right to such consideration.

The contract asset is reclassified to accounts receivable as services are performed and billed, which results in the Company’s unconditional right to the consideration.

The Company has the right to bill the customer as service is provided over time, which generally occurs over the course of a 24-, 36-, or 60-month period.

The financing component of contract assets is not significant.

The Company records an allowance for credit losses against its contract assets for expected credit losses that are not expected to be recovered.

1 unchanged sentence

The allowance for credit losses on contract assets was not material for the periods presented.

The following is a summary of contract assets, net, related to residential transactions recognized in the Condensed Consolidated Balance Sheets as of the periods presented below:

(in thousands) September 30, 2020 January 1, 2020 (1)

The following table presents contract assets, net, related to residential transactions recognized in the Condensed Consolidated Balance Sheets:

(in thousands) March 31, 2021 December 31, 2020

Contract assets, gross $ 161,672 $ 161,563

5 unchanged sentences

Contract assets, net $ 134,529 $ 132,005

________________

(1) Balances reflected are subsequent to the adoption of CECL on January 1, 2020.

The Company recognized approximately $ 158 million of contract assets during the nine months ended September 30, 2020.

The Company recognized approximately $ 20 million and $ 65 million of contract assets during the three months ended March 31, 2021 and 2020, respectively.

Company as Lessor

The Company is a lessor in certain transactions in which the Company provides monitoring and related services but retains ownership of the security system as the Company has identified a lease component associated with the right-of-use of the security system and a non-lease component associated with monitoring and related services.

For transactions in which the timing and pattern of transfer is the same for the lease and non-lease components, and the lease component would be classified as an operating lease if accounted for separately, the Company applies the practical expedient to aggregate the lease and non-lease components and accounts for the combined component based upon its predominant characteristic, which is the non-lease component.

For transactions in which (i) the timing and pattern of transfer is the same for the lease and non-lease components, and (ii) the lease component would be classified as an operating lease if accounted for separately, the Company applies the practical expedient to aggregate the lease and non-lease components and accounts for the combined transaction based upon its predominant characteristic, which is the non-lease component.

As a result, the Company accounts for the combined component as a single performance obligation under the applicable revenue guidance and the underlying assets are reflected within subscriber system assets, net, in the Condensed Consolidated Balance Sheets.

Certain of the Company’s transactions do not qualify for the practical expedient as the lease component represents a sales-type lease, and as such, the Company separately accounts for the lease component and non-lease component.

Certain of the Company’s transactions do not qualify for the practical expedient as the lease component represents a sales-type lease, and as such, the Company accounts for the lease and non-lease components separately.

The Company’s sales-type leases are not material.

Company as Lessee

The Company leases real estate, vehicles, and equipment with various lease terms and maturities that extend out through 2030 from various counter parties as part of normal operations.

The Company leases real estate, vehicles, and equipment with various lease terms and maturities that extend out through 2030 from various counterparties as part of normal operations.

The Company applies the practical expedient to not separate the lease and non-lease components and accounts for the combined component as a lease.

5 unchanged sentences

Lease payments that are not fixed or that are not dependent on an index or rate and vary because of changes in usage or other factors are included in variable lease costs.

Variable lease costs, which primarily relate to fuel, repair, and maintenance payments that vary based on the usage of leased vehicles, are recorded in the period in which the obligation is incurred.

Variable lease costs are recorded in the period in which the obligation is incurred and primarily relate to fuel, repair, and maintenance payments that vary based on the usage of leased vehicles.

The Company’s leases do not contain material residual value guarantees or restrictive covenants.

The Company’s subleases are not material.

The following table presents the amounts reported in the Company’s Condensed Consolidated Balance Sheets related to operating and finance leases as of the periods presented below:

The following table presents operating and finance leases recognized in the Condensed Consolidated Balance Sheets:

Leases ( in thousands )

Classification September 30, 2020 December 31, 2019

Operating Prepaid expenses and other current assets $ 923 $ 1,191

Operating Other assets 141,214 122,464

Finance Property and equipment, net (a)

Presentation Classification March 31, 2021 December 31, 2020

Operating Current Prepaid expenses and other current assets $ 647 $ 684

Operating Non-current Other assets 129,238 138,408

Finance Non-current Property and equipment, net (1)

56,018 54,414

Total right-of-use assets $ 185,903 $ 193,506

Operating Accrued expenses and other current liabilities $ 27,863 $ 29,745

Finance Current maturities of long-term debt 28,064 26,949

Operating Other liabilities 121,554 99,999

Finance Long-term debt 34,806 47,835

Operating Current Accrued expenses and other current liabilities $ 31,104 $ 30,689

Finance Current Current maturities of long-term debt 29,138 26,955

Operating Non-current Other liabilities 106,938 115,694

Finance Non-current Long-term debt 32,905 34,373

Total lease liabilities $ 200,085 $ 207,711

_________________

(a) Finance right-of-use assets are recorded net of accumulated depreciation of approximately $ 61 million and $ 44 million as of September 30, 2020 and December 31, 2019, respectively.

The following is a summary of the Company’s lease cost for the presented periods:

For the Three Months Ended For the Nine Months Ended

(1) Finance right-of-use assets are recorded net of accumulated depreciation of approximately $ 72 million and $ 67 million as of March 31, 2021 and December 31, 2020, respectively.

The following table presents the components of total lease cost:

Three Months Ended

Lease Cost ( in thousands )

September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

March 31, 2021 March 31, 2020

Operating lease cost $ 12,893 $ 14,600

4 unchanged sentences

Total lease cost $ 32,877 $ 34,308

The following is a summary of the cash flows and supplemental information associated with the Company’s leases for the presented periods:

For the Nine Months Ended

The following table presents cash flow and supplemental information associated with the Company’s leases:

Three Months Ended

Other information ( in thousands )

September 30, 2020 September 30, 2019

March 31, 2021 March 31, 2020

Cash paid for amounts included in the measurement of lease liabilities:

5 unchanged sentences

Finance lease liabilities $ 8,072 $ 4,627

Defenders Acquisition

During January 2020, the Company acquired Defender Holdings, Inc.

(“Defenders”) (the “Defenders Acquisition”), which represented the acquisition of the Company’s largest independent dealer, for total consideration of approximately $ 290 million, which consisted of cash paid of $ 173 million, net of cash acquired, and the issuance of approximately 16 million shares of the Company’s common stock, par value of $0.01 per share, (“Common Stock”) with a fair value of $ 114 million.

The following table summarizes the purchase price allocation of the estimated fair values of the net assets acquired and liabilities assumed as reflected in the condensed consolidated financial statements as of the date of acquisition:

Fair value of assets acquired and liabilities assumed (in thousands) :

Accounts receivable 15,269

Inventories 17,950

Prepaid expenses and other current assets 16,752

Property and equipment 16,486

Goodwill 253,784

Contracts and related customer relationships 17,000

Other assets 18,733

Accounts payable ( 14,937 )

Deferred revenue ( 1,170 )

Accrued expenses and other current liabilities ( 29,130 )

Deferred tax liabilities ( 8,051 )

Other liabilities ( 15,760 )

Total consideration transferred $ 290,363

The purchase price allocation reflects preliminary fair value estimates based on management analysis, including preliminary work performed by third-party valuation specialists.

The Company will finalize the purchase price allocation no later than one

year from the acquisition date.

The acquired contracts and related customer relationships are amortized over 14 years.

The Company recorded approximately $ 254 million of goodwill, none of which is deductible for tax purposes, and reflects the strategic value and expected synergies of Defenders to the Company.

Additionally, the Company allocated the goodwill recognized as a result of the Defenders Acquisition to the U.S.

reporting unit.

In connection with the Defenders Acquisition, the Company settled a pre-existing relationship with Defenders related to customer accounts purchased from Defenders prior to the Defenders Acquisition.

As a result, the Company recorded a charge in the amount of $ 81 million to merger, restructuring, integration, and other in the Condensed Consolidated Statements of Operations and reflected the associated cash payment as cash flows from operating activities in the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020.

Other Acquisitions

In addition to the Defenders Acquisition, the Company paid $ 9 million, net of cash acquired, related to other business acquisitions, which resulted in the recognition of $ 3 million of goodwill, during the nine months ended September 30, 2020.

During the three months ended March 31, 2021, total consideration related to business acquisitions was $ 16 million.

In January 2020, the Company acquired its largest independent dealer, Defender Holdings, Inc.

(“Defenders”) (the “Defenders Acquisition”) for total consideration of approximately $ 290 million, which consisted of cash paid of $ 173 million, net of cash acquired, and the issuance of approximately 16 million shares of the Company’s Common Stock with a fair value of $ 114 million.

During the three months ended March 31, 2020, other business acquisitions were not material.

Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill during the nine months ended September 30, 2020 were as follows:

(in thousands)

Beginning balance $ 4,959,658

During the fourth quarter of 2020, the Company changed its reporting units, which included the reassignment of assets, liabilities, and financial operating results, as well as an applicable portion of goodwill based on a relative fair value approach, related to the Company’s commercial customers from the U.S.

reporting unit (now referred to as CSB) into the former Red Hawk reporting unit (now referred to as Commercial).

As discussed in Note 1 “Description of Business and Summary of Significant Accounting Policies,” effective in the first quarter of 2021, the Company’s operating and reportable segments are CSB, which is now comprised of the CSB reporting unit, and Commercial, which is now comprised of the Commercial reporting unit.

Both of the Company’s reporting units were previously included in a single operating and reportable segment.

The change in reportable segments did not further impact the Company’s reporting units.

The following table presents changes in the carrying amount of goodwill by reportable segment during the three months ended March 31, 2021:

(in thousands) CSB Commercial Total Goodwill

Beginning balance, as previously reported N/A N/A $ 5,236,302

Beginning balance, after change in reportable segments $ 4,915,857 $ 320,445 $ 5,236,302

Acquisitions — 6,279 6,279

Other ( 25 ) 417 392

Ending balance $ 4,915,832 $ 327,141 $ 5,242,973

There were no material measurement period adjustments to purchase price allocations.

The Company had no accumulated goodwill impairment losses as of September 30, 2020 and December 31, 2019.

_________________

N/A—Not applicable.

The Company had no accumulated goodwill impairment losses as of March 31, 2021 and December 31, 2020.

There were no material measurement period adjustments to purchase price allocations during the three months ended March 31, 2021.

Other Intangible Assets

The gross carrying amounts, accumulated amortization, and net carrying amounts of the Company’s other intangible assets as of September 30, 2020 and December 31, 2019 were as follows:

September 30, 2020 December 31, 2019

The following table summarizes the gross carrying amounts, accumulated amortization, and net carrying amounts of the Company’s other intangible assets:

March 31, 2021 December 31, 2020

(in thousands) Gross Carrying

12 unchanged sentences

Intangible assets $ 11,313,954 $ ( 5,504,659 ) $ 5,809,295 $ 11,405,302 $ ( 5,498,612 ) $ 5,906,690

For the nine months ended September 30, 2020, the changes in the net carrying amount of contracts and related customer relationships were as follows:

The following table presents changes in the net carrying amount of contracts and related customer relationships during the three months ended March 31, 2021:

(in thousands)

4 unchanged sentences

Ending balance $ 3,320,627

The Company paid $ 265 million to purchase contracts with customers under the ADT Authorized Dealer Program and from other third parties during the nine months ended September 30, 2020.

In connection with the Defenders Acquisition, the Company received an advance payment of $ 39 million for the estimated future dealer charge-backs related to accounts purchased from Defenders prior to the Defenders Acquisition.

This amount is included in dealer generated customer accounts and bulk account purchases in the Condensed Consolidated Statement of Cash Flows and is anticipated to be materially realized as a reduction to contracts and related customer relationships over the course of a 13-month charge-back period.

The weighted-average amortization period for contracts with customers purchased under the ADT Authorized Dealer Program and from other third parties was 15 years during the nine months ended September 30, 2020.

Amortization expense for definite-lived intangible assets for the periods presented was as follows:

For the Three Months Ended For the Nine Months Ended

(in thousands) September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

During the three months ended March 31, 2021, the Company paid $ 199 million to purchase contracts with customers under the ADT Authorized Dealer Program and from other third parties.

The weighted-average amortization period for contracts with customers purchased under the ADT Authorized Dealer Program and from other third parties was 12 years during the three months ended March 31, 2021.

Contracts and related customer relationships includes the purchase of customer accounts from a third-party in February 2021 for a total contractual purchase price of $ 91 million, subject to reduction based on customer retention.

The Company paid cash at closing of $ 73 million, which is included in dealer generated customer accounts and bulk account purchases on the Condensed Consolidated Statements of Cash Flows.

The following table presents amortization expense for definite-lived intangible assets:

Three Months Ended

(in thousands) March 31, 2021 March 31, 2020

Definite-lived intangible asset amortization expense $ 299,327 $ 306,956

Goodwill and Indefinite-Lived Intangible Assets Impairment

Goodwill and indefinite-lived intangible assets are not amortized and are tested for impairment at least annually as of the first day of the fourth quarter of each year and more often if an event occurs or circumstances change which indicate it is more-likely-than-not that fair value is less than carrying amount .

As a result of the macroeconomic decline due to the ongoing COVID-19 Pandemic, the Company quantitatively tested the goodwill associated with its reporting units for impairment as of March 31, 2020.

Under the quantitative approach, the Company estimated the fair value of each reporting unit and compared it to its carrying amount.

The fair values of the reporting units were determined using the income approach, which discounts projected cash flows using market participant assumptions.

The income approach included significant assumptions including, but not limited to, forecasted revenue, operating profit margins, operating expenses, cash flows, perpetual growth rates, and long-term discount rates.

In developing these assumptions, the Company relied on various factors including operating results, business plans, economic projections, anticipated future cash flows, and other market data.

Based on the results of the tests, the Company did not record any goodwill impairment losses associated with its reporting units.

Due to the COVID-19 Pandemic, the assumptions made in connection with the Company’s goodwill impairment assessments could be impacted in the future as a result of the evolving and uncertain nature of economic conditions.

As a result, the Company’s reporting units are considered at risk of future impairment.

If the Company’s assumptions are not realized, or if there are changes in any of the assumptions in the future due to a change in economic conditions, it is possible that an impairment charge may need to be recorded in the future.

Debt as of September 30, 2020 and December 31, 2019 was comprised of the following:

(in thousands) Balance as of

Debt Description Issued Maturity Interest Rate Interest Payable September 30, 2020 December 31, 2019

Intangible Asset Impairments

During the three months ended March 31, 2021, the Company recognized $ 18 million in impairment losses on its other definite-lived intangible assets primarily due to lower than expected benefits from the Cell Bounce developed technology intangible asset, which is included in the CSB segment, as a result of recent worldwide shortages for certain electronic components.

The fair value was determined using an income-based approach, and the loss is reflected in merger, restructuring, integration, and other in the Condensed Consolidated Statements of Operations.

The Company’s debt is comprised of the following:

(in thousands, except as otherwise indicated)

Balance as of

Debt Description Issued Maturity Interest Rate Interest Payable March 31, 2021 December 31, 2020

First Lien Term Loan due 2026 9/23/2019 9/23/2026 Adj.

1 unchanged sentence

Second Lien Notes due 2028 1/28/2020 1/15/2028 6.250 % 1/15 and 7/15 1,300,000 1,300,000

Prime Notes 5/2/2016 5/15/2023 9.250 % 5/15 and 11/15 — 1,246,000

First Lien Notes due 2024 4/4/2019 4/15/2024 5.250 % 2/15 and 8/15 750,000 750,000

5 unchanged sentences

ADT Notes due 2042 7/5/2012 7/15/2042 4.875 % 1/15 and 7/15 21,896 21,896

Receivables Facility 3/5/2020 2/20/2026 LIBOR +0.85% Monthly 98,077 75,775

8 unchanged sentences

N/A—Not applicable.

Significant changes in the Company’s debt during the nine months ended September 30, 2020 were as follows:

Refer to Note 3 “Leases” for additional information regarding the Company’s finance leases.

Significant changes in the Company’s debt during the three months ended March 31, 2021 were as follows:

First Lien Credit Agreement

As of September 30, 2020, the Company had an available borrowing capacity of $ 400 million under a first lien revolving credit facility (the “First Lien Revolving Credit Facility”), with no borrowings outstanding.

Second Lien Notes due 2028

During January 2020, the Company issued $ 1.3 billion aggregate principal amount of 6.250 % second-priority senior secured notes due 2028 (the “Second Lien Notes due 2028”).

The proceeds from the Second Lien Notes due 2028, along with cash on hand and borrowings under the First Lien Revolving Credit Facility, were used to redeem the outstanding $ 1.2 billion aggregate principal amount of the Company’s 9.250 % second-priority senior secured notes due 2023 (the “Prime Notes”) and pay any related fees and expenses, including the call premium on the outstanding Prime Notes.

The deferred financing costs incurred in connection with the issuance of the Second Lien Notes due 2028 were not material.

The Second Lien Notes due 2028 are due at maturity and may be redeemed at the Company’s option as follows:

• Prior to January 15, 2023, in whole at any time or in part from time to time, (a) at a redemption price equal to 100 % of the principal amount of the Second Lien Notes due 2028 redeemed, plus a make-whole premium and accrued and unpaid interest as of, but excluding, the redemption date or (b) for up to 40 % of the original aggregate principal amount of the Second Lien Notes due 2028 and in an aggregate amount equal to the net cash proceeds of any equity offerings, at a redemption price equal to 106.250 %, plus accrued and unpaid interest, so long as at least 50 % of the original aggregate principal amount of the Second Lien Notes due 2028 shall remain outstanding after each such redemption.

• On or after January 15, 2023, in whole at any time or in part from time to time, at a redemption price equal to 103.125 % of the principal amount of the Second Lien Notes due 2028 redeemed and accrued and unpaid interest as of, but excluding, the redemption date.

The redemption price decreases to 101.563 % on or after January 15, 2024 and decreases to 100 % on or after January 15, 2025.

The Company’s obligations relating to the Second Lien Notes due 2028 are guaranteed, jointly and severally, on a senior secured second-priority basis, by each of the Company’s domestic subsidiaries that guarantees its First Lien Credit Agreement and by each of the Company’s future domestic subsidiaries that guarantees certain of the Company’s debt.

The Second Lien Notes due 2028 and the related guarantees are secured by second-priority security interests in substantially all of the tangible and intangible assets owned by the issuers and each guarantor, subject to certain permitted liens and exceptions.

Additionally, upon the occurrence of specified change of control events, the Company must offer to repurchase the Second Lien Notes due 2028 at 101 % of the principal amount, plus accrued and unpaid interest, if any, to, but not including, the purchase date.

The indenture governing the Second Lien Notes due 2028 also provides for customary events of default.

The indenture underlying the outstanding $ 1.2 billion aggregate principal amount of the Prime Notes was discharged during January 2020 and the Prime Notes were redeemed during February 2020 for a total redemption price of approximately $ 1.3 billion, which included the related call premium.

In January 2021, the Company amended and restated its first lien credit agreement dated as of July 1, 2015 (together with subsequent amendments and restatements, the “First Lien Credit Agreement”) to refinance the term loan facility (the “First Lien Term Loan due 2026”), which reduced the applicable margin for Adjusted London Interbank Offered Rate (“LIBOR”) loans from 3.25 % to 2.75 % and reduced the LIBOR floor from 1.00 % to 0.75 %.

Additionally, the amendment requires the Company to make quarterly payments equal to 0.25 % of the aggregate outstanding principal amount of the First Lien Term Loan due 2026, or approximately $ 7 million per quarter.

The Company may make voluntary prepayments on the First Lien Term Loan due 2026 at any time prior to maturity at par, subject to a 1.00 % prepayment premium in the event of certain specified events at any time during the six months after the closing date of the amendment.

As of March 31, 2021, the Company had an available borrowing capacity of $ 400 million under its first lien revolving credit facility (the “First Lien Revolving Credit Facility”) and no borrowings outstanding.

Receivables Facility

During March 2020, the Company entered into the Receivables Facility.

During April 2020, the Company amended the Receivables Facility to also permit financing secured by retail installment contract receivables from transactions occurring under a Company-owned model.

The Receivables Facility has a one year revolving period until March 5, 2021 , which may be extended, and bears interest at a variable rate.

If the revolving period is not extended, the Company is required to repay the Receivables Facility in a manner consistent with the contractual collections of the underlying retail installment contract receivables.

The Company may make voluntary prepayments on the Receivables Facility at any time prior to maturity at par.

The Company obtains financing by selling or contributing certain retail installment contract receivables to the Company’s wholly-owned consolidated bankruptcy-remote special purpose entity (the “SPE”), which, pursuant to the Receivables Facility, borrows funds secured by the transferred retail installment contract receivables.

Under the terms of the Receivables Facility, the Company may receive up to $ 200 million of financing secured by the Company’s retail installment contract receivables.

In March 2021, the Company amended the Receivables Facility to, among other things, extend the revolving period until March 4, 2022 , and reduced the LIBOR floor from 1.00 % to 0.85 %.

The Company obtains financing by selling or contributing certain retail installment contract receivables to the Company’s wholly-owned consolidated bankruptcy-remote special purpose entity (“SPE”), which, pursuant to the Receivables Facility, borrows funds secured by the transferred retail installment contract receivables.

The SPE is a separate legal entity with its own creditors who will be entitled, prior to and upon the liquidation of the SPE, to be satisfied out of the SPE’s assets prior to any assets in the SPE becoming available to the Company (other than the SPE).

1 unchanged sentence

The SPE’s creditors have legal recourse to the transferred retail installment contract receivables owned by the SPE, but do not have any recourse to the Company (other than the SPE) for the payment of principal and interest on the SPE’s financing.

The Company services the transferred retail installment contract receivables and is responsible for ensuring that amounts collected from the transferred retail installment contract receivables are remitted to the SPE.

The Company is required to deposit payments received from the transferred retail installment contract receivables into a segregated account maintained by a third party.

On a monthly basis, the segregated account is utilized to make required principal, interest, and other payments due under the Receivables Facility.

2 unchanged sentences

Borrowings and repayments under the Receivables Facility are reflected as cash flows from financing activities in the Condensed Consolidated Statements of Cash Flows.

During the nine months ended September 30, 2020, the Company received proceeds of $ 44 million under the Receivables Facility and repaid $ 2 million.

As of September 30, 2020, the Company had an outstanding balance of $ 41 million and an uncommitted available borrowing capacity of $ 159 million under the Receivables Facility.

The Receivables Facility did not have a material impact to the Condensed Consolidated Statements of Operations.

During the three months ended March 31, 2021, the Company received proceeds of $ 30 million under the Receivables Facility and repaid $ 7 million.

As of March 31, 2021 and December 31, 2020, the Company had outstanding balances of $ 98 million and $ 76 million, respectively.

As of March 31, 2021, the Company had an uncommitted available borrowing capacity of $ 102 million under the Receivables Facility.

The Receivables Facility did not have a material impact to the Condensed Consolidated Statements of Operations during the three months ended March 31, 2021 and 2020.

Variable Interest Entity

1 unchanged sentence

As such, the assets, liabilities, and financial results of operations of the SPE are consolidated in the Company’s condensed consolidated financial statements.

As of September 30, 2020, the SPE’s assets and liabilities primarily consisted of unbilled retail installment contract receivables, net, of $ 56 million and borrowings under the Receivables Facility of $ 41 million.

First Lien Notes due 2027

During August 2020, the Company issued $ 1 billion aggregate principal amount of 3.375 % first-priority senior secured notes due 2027 (the “First Lien Notes due 2027”).

The proceeds from the First Lien Notes due 2027, along with cash on hand, were used to redeem the outstanding $ 1 billion aggregate principal amount of the 6.250 % notes due 2021 issued by The ADT Corporation (the “ADT Notes due 2021”), pay accrued and unpaid interest on the ADT Notes due 2021, and pay any related fees and expenses, including the call premium on the ADT Notes due 2021.

The deferred financing costs incurred in connection with the issuance of the First Lien Notes due 2027 were not material.

The First Lien Notes due 2027 are due at maturity and may be redeemed at the Company’s option as follows:

• Prior to August 31, 2026, in whole at any time or in part from time to time, at a make-whole premium plus accrued and unpaid interest, if any, thereon to the redemption date.

• On or after August 31, 2026, in whole at any time or in part from time to time, at a redemption price equal to 100 % of the principal amount of the First Lien Notes due 2027 redeemed plus accrued and unpaid interest, if any, thereon to the redemption date.

The Company’s obligations relating to the First Lien Notes due 2027 are guaranteed, jointly and severally, on a senior secured first-priority basis, by each of the Company’s domestic subsidiaries that guarantees its First Lien Credit Agreement and by each of the Company’s future domestic subsidiaries that guarantees certain of the Company’s debt.

The First Lien Notes due 2027 and the related guarantees are secured by first-priority security interests in substantially all of the tangible and intangible assets owned by the issuers and each guarantor, subject to certain permitted liens and exceptions.

Additionally, upon the occurrence of specified change of control events, the Company must offer to repurchase the First Lien Notes due 2027 at 101 % of the principal amount, plus accrued and unpaid interest, if any, to, but not including, the purchase date.

The indenture governing the First Lien Notes due 2027 also provides for customary events of default.

In September 2020, the Company redeemed $ 1 billion aggregate principal amount of the ADT Notes due 2021 for a total repurchase price of approximately $ 1.1 billion, which included the related call premium.

As of March 31, 2021 and December 31, 2020, the SPE’s assets and liabilities primarily consisted of unbilled retail installment contract receivables, net, of $ 143 million and $ 109 million, respectively, and borrowings under the Receivables Facility of $ 98 million and $ 76 million, respectively.

Loss on Extinguishment of Debt

During the nine months ended September 30, 2020, loss on extinguishment of debt totaled $ 115 million and included $ 66 million associated with the call premium and write-off of unamortized deferred financing costs in connection with the $ 1.2 billion redemption of the Prime Notes in February 2020 and $ 49 million associated with the call premium and write-off of unamortized fair value adjustments in connection with the $ 1 billion redemption of the ADT Notes due 2021 in September 2020.

During the nine months ended September 30, 2019, loss on extinguishment of debt totaled $ 103 million and included (i) $ 22 million associated with the call premium and the partial write-off of unamortized deferred financing costs in connection with the $ 300 million partial redemption of the Prime Notes in February 2019, (ii) $ 61 million associated with the call premium and partial write-off of unamortized deferred financing costs in connection with the $ 1 billion partial redemption of the Prime Notes in April 2019, (iii) $ 6 million associated with the partial write-off of unamortized deferred financing costs and discount in connection with the $ 500 million repayment of the First Lien Term B-1 Loan in April 2019, and (iv) $ 13 million associated with the partial write-off of unamortized deferred financing costs and discount in connection with the amendment and restatement to the First Lien Credit Agreement in September 2019.

During the three months ended March 31, 2021, loss on extinguishment was not material.

During the three months ended March 31, 2020, loss on extinguishment of debt totaled $ 66 million and related to the call premium and write-off of unamortized deferred financing costs in connection with the $ 1.2 billion redemption of the Company’s second-priority secured notes in February 2020.

Derivative Financial Instruments

1 unchanged sentence

All interest rate swap contracts are reported in the Condensed Consolidated Balance Sheets at fair value.

For the interest rate swap contracts that are not designated as hedges, changes in fair value are recognized in interest expense, net, in the Condensed Consolidated Statements of Operations.

For the interest rate swap contracts that are designated as cash flow hedges, changes in fair value are recognized as a component of accumulated other comprehensive income (“AOCI”) in the Condensed Consolidated Balance Sheets and are reclassified into interest expense, net, in the same period in which the related interest on debt affects earnings.

For interest rate swap contracts that have been de-designated as cash flow hedges, the amounts recognized as a component of AOCI are reclassified into interest expense, net, in the same period in which the related interest on variable-rate debt affects earnings through the original maturity date of the related interest rate swap contracts as the forecasted cash flows are probable of occurring.

Additionally, the changes in fair value for de-designated interest rate swap contracts are recognized in interest

expense, net.

The interest rate swap contracts entered into during October 2019 included a significant financing component at inception, and as such, the related cash flows are reflected in cash flows from financing activities in the Condensed Consolidated Statements of Cash Flows.

As a result of changes in the interest rate environment in response to macroeconomic decline, the Company's interest rate swap contracts designated as cash flow hedges with an aggregate notional amount of $ 3 billion were no longer highly effective beginning in March 2020.

Accordingly, the Company de-designated the cash flow hedges and the changes in fair value for the period in which these cash flow hedges were no longer highly effective were recognized in interest expense, net.

Amounts recognized as a component of AOCI prior to de-designation will be reclassified into interest expense, net, in the same period in which the related interest on variable-rate debt affects earnings through the maturity dates of the interest rate swap contracts as the forecasted cash flows are probable of occurring.

Below is a summary of the Company’s interest rate swap contracts as of September 30, 2020 ( in thousands ):

For interest rate swap contracts not designated as cash flow hedges, unrealized gains and losses are recognized in interest expense, net, in the Condensed Consolidated Statements of Operations.

For interest rate swap contracts designated as cash flow hedges, unrealized gains and losses are recognized as a component of accumulated other comprehensive income (“AOCI”) in the Condensed Consolidated Balance Sheets and are reclassified into interest expense, net, in the same period in which the related interest on debt affects earnings.

For interest rate swap contracts that have been de-designated as cash flow hedges and for which the forecasted cash flows are probable or reasonably possible of occurring, unrealized gains and losses previously recognized as a component of AOCI are reclassified into interest expense, net, in the same period in which the related interest on variable-rate debt affects

earnings through the original maturity date of the related interest rate swap contracts.

For interest rate swap contracts that have been de-designated as cash flow hedges and for which the forecasted cash flows are probable of not occurring, unrealized gains and losses previously recognized as a component of AOCI are immediately reclassified into interest expense, net.

The cash flows associated with interest rate swap contracts that included an other-than-significant financing element at inception are reflected as cash flows from financing activities in the Condensed Consolidated Statements of Cash Flows.

The following table presents the Company’s interest rate swaps as of March 31, 2021 and December 31, 2020 ( in thousands ):

Execution Maturity Designation Notional Amount

3 unchanged sentences

Total notional amount $ 3,225,000

The changes in fair value of interest rate swap contracts recognized in interest expense, net, in the Condensed Consolidated Statements of Operations were a gain of $ 8 million and a loss of $ 1 million during the three months ended September 30, 2020 and 2019, respectively, and losses of $ 90 million and $ 9 million during the nine months ended September 30, 2020 and 2019, respectively.

The interest rate swap contracts did not have a material impact to the Condensed Consolidated Statements of Cash Flows during the nine months ended September 30, 2020 and 2019.

The fair value of the Company’s interest rate swap contracts and related classification in the Condensed Consolidated Balance Sheets for the periods presented were as follows:

(in thousands) September 30, 2020 December 31, 2019

As a result of changes in the interest rate environment during 2020, the Company's interest rate swap contracts previously designated as cash flow hedges with an aggregate notional amount of $ 3 billion were no longer highly effective beginning in March 2020.

Accordingly, the Company de-designated the cash flow hedges, and the unrealized gains and losses for the period in which these cash flow hedges were no longer highly effective were recognized in interest expense, net.

As the forecasted cash flows are probable or reasonably possible of occurring, unrealized losses previously recognized as a component of AOCI prior to de-designation will be reclassified into interest expense, net, in the same period in which the related interest on variable-rate debt affects earnings through the maturity dates of the interest rate swap contracts.

The unrealized impact of interest rate swap contracts recognized in interest expense, net, in the Condensed Consolidated Statements of Operations was a gain of $ 107 million and a loss of $ 70 million during the three months ended March 31, 2021 and 2020, respectively.

During the three months ended March 31, 2021 and 2020, the Company paid $ 14 million and $ 3 million, respectively, related to settlements on interest rate swap contracts that included an other-than-insignificant financing element at inception, which is reflected in cash flows from financing activities in the Condensed Consolidated Statement of Cash Flows.

The following table presents the fair value of the Company’s interest rate swaps and related classification in the Condensed Consolidated Balance Sheets:

(in thousands) March 31, 2021 December 31, 2020

Accrued expenses and other current liabilities $ 64,864 $ 65,462

1 unchanged sentence

Fair value of interest rate swaps $ 169,323 $ 275,840

As of September 30, 2020 and December 31, 2019, AOCI, net of tax, related to cash flow hedges was $ 135 million and $ 59 million, respectively.

During September 2020, the Company amended its articles of incorporation to authorize the issuance of 100,000,000 shares of Class B common stock, par value of $ 0.01 per share, (“Class B Common Stock”) as well as to increase the number of authorized shares of preferred stock, par value of $ 0.01 per share, to 1,000,000 .

The Class B Common Stock represents a new class of common stock of the Company.

Each share of Class B Common Stock has equal status and rights to dividends with a share of Common Stock.

The holders of Class B Common Stock have one vote for each share of Class B Common Stock held of record by such holder on all matters on which stockholders are entitled to vote generally;

provided, however, that holders of Class B Common Stock, as such, are not entitled to vote on the election, appointment, or removal of directors of the Company.

Additionally, each share of Class B Common Stock will immediately become convertible into one share of Common Stock, at the option of the holder thereof, at any time following the earlier of (i) the expiration or early termination of applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (“HSR Clearance”), required prior to such holder’s conversion of all such shares of Class B Common Stock, and (ii) to the extent HSR Clearance is not required prior to such holder’s conversion of such shares of Class B Common Stock, the date that such holder owns such shares of Class B Common Stock.

Issuance of Common Stock

During January 2020, the Company issued approximately 16 million shares of Common Stock with a fair value of $ 114 million in connection with the Defenders Acquisition.

Issuance of Class B Common Stock

During September 2020, the Company issued and sold 54,744,525 shares of Class B Common Stock for an aggregate purchase price of $ 450 million to Google LLC (“Google”) in a private placement pursuant to a securities purchase agreement dated July 31, 2020 (the “Securities Purchase Agreement”).

As of the date of closing, Google held approximately 6.6 % of the issued and outstanding Common Stock of the Company on an as-converted basis.

Prior to closing, the Securities Purchase Agreement provided Google with the option to purchase additional shares of Class B Common Stock, for the same price per share, up to 9.9 % of the issued and outstanding Common Stock of the Company on an as-converted basis.

Google did not exercise this option.

The proceeds received will be used to reduce debt and fund growth over time.

In connection with the issuance of the Class B Common Stock, the Company and Google entered into an Investor Rights Agreement (the “Investor Rights Agreement”), pursuant to which Google agreed to be bound by customary transfer restrictions and drag-along rights, and be afforded customary registration rights with respect to shares of Class B Common Stock held directly by Google.

Under the terms of the Investor Rights Agreement, Google is prohibited, subject to certain exceptions, from transferring any shares of Class B Common Stock or any shares of Common Stock issuable upon conversion of the Class B Common Stock beneficially owned by Google until the earlier of (i) the three-year anniversary of issuance, (ii) the date on which the Commercial Agreement (as subsequently defined) has been terminated under certain specified circumstances, and (iii) June 30, 2022 if the Company breaches certain of its obligations under the Commercial Agreement.

The Company estimated the fair value of the issued Class B Common Stock to be approximately $ 450 million, which represents a Level 3 fair value measurement.

The estimation of the fair value included the following inputs:

(i) the price per share of Common Stock, (ii) the length of the holding period restriction, (iii) an expected dividend-yield of 1.5% during the holding period restriction, which was based on the projected dividend run-rate and dividing by the stock price, and (iv) an expected share price volatility of 30% during the holding period restriction period, which was implied based upon an average of historical volatility of publicly traded companies in industries similar to the Company as well as consideration for the Company’s debt to equity ratio.

The intrinsic value of the beneficial conversion feature related to the ability to convert Class B Common Stock to Common Stock as well as the fair value of Google’s option to purchase additional shares of Class B Common Stock were not material.

Commercial Agreement

Concurrently with the issuance and sale of Class B Common Stock to Google, the Company and Google entered into a Master Supply, Distribution, and Marketing Agreement (the “Commercial Agreement”), pursuant to which Google has agreed to supply the Company with certain Google devices as well as certain Google video and analytics services (“Google Services”), for sale to the Company’s customers.

Subject to customary termination rights related to breach and change of control, the Commercial Agreement has an initial term of seven years from the date that the Google Service is successfully integrated into the Company’s end-user security and automation platform, which is targeted for no later than June 30, 2022.

Further, subject to certain carveouts, the Company has agreed to exclusively sell Google end‐user video and sensing analytics services and smart-home, security and safety devices to the Company’s customers;

the exclusivity does not apply to, among others, the Company’s Blue by ADT DIY products and services, certain legacy platforms of the Company, sales of wholesale monitoring services, sales to large commercial customers, and certain devices that Google does not supply to the Company.

The Commercial Agreement specifies that each party will contribute $ 150 million towards the joint marketing of devices and services, customer acquisition, training of the Company’s employees for the sales, installation, customer service, and maintenance for the product and service offerings, and technology updates for products included in such offerings.

Each party will contribute such funds in three equal tranches, subject to the attainment of certain milestones.

During the nine months ended September 30, 2020, the Company declared the following dividends on common stock:

Declaration Date Record Date Payment Date Common Stock Dividend per Share Class B Common Stock Dividend per Share

March 5, 2020 March 19, 2020 April 2, 2020 $ 0.035 $ —

May 7, 2020 June 18, 2020 July 2, 2020 $ 0.035 $ —

August 5, 2020 September 18, 2020 October 2, 2020 $ 0.035 $ 0.035

During the three months ended September 30, 2020, the Company declared dividends of $ 0.035 per share on Common Stock ($ 27 million) and $ 0.035 per share on Class B Common Stock ($ 2 million).

The amount of dividends settled in shares of Common Stock during the period was not material.

During the three months ended September 30, 2019, the Company declared dividends of $ 0.035 per share on Common Stock ($ 26 million), of which $ 3 million represents the portion of the dividends settled in cash and $ 23 million represents the portion of the dividends settled in shares of Common Stock, which resulted in the issuance of approximately 4 million shares of Common Stock, on October 2, 2019.

During the nine months ended September 30, 2020, the Company declared aggregate dividends of $ 0.105 per share on Common Stock ($ 81 million) and $ 0.035 per share on Class B Common Stock ($ 2 million).

The amount of dividends settled in shares of Common Stock during the period was not material.

During the nine months ended September 30, 2019, the Company declared aggregate dividends of $ 0.105 per share on Common Stock ($ 79 million).

When including the October 2, 2019 payment date, approximately $ 11 million represents the portion of the dividends settled in cash and $ 68 million represents the portion of the dividends settled in shares of Common Stock, which resulted in the issuance of 11 million shares of Common Stock.

On November 5, 2020, the Company announced a dividend of $ 0.035 per share to holders of Common Stock and Class B Common Stock of record on December 21, 2020, which will be distributed on January 4, 2021.

As of March 31, 2021 and December 31, 2020, AOCI, net of tax, related to cash flow hedges was $ 106 million and $ 118 million, respectively.

The Company has two classes of common stock, Common Stock and Class B Common Stock, both of which entitle stockholders to one vote for each share.

Each share of Class B Common Stock has equal status and rights to dividends as a share of Common Stock.

The holders of Class B Common Stock have one vote for each share of Class B Common Stock held on all matters on which stockholders are entitled to vote generally except for voting on the election, appointment, or removal of directors of the Company.

Additionally, each share of Class B Common Stock will immediately become convertible into one share of Common Stock, at the option of the holder, subject to certain timing and restrictions.

The following table presents the Company’s dividends declared on common stock during the three months ended March 31, 2021 and 2020:

(in thousands, except per share data) Common Stock

Dividends Class B Common Stock Dividends

Declaration Date Record Date Payment Date Per Share Aggregate Per Share Aggregate

2/25/2021 3/18/2021 4/1/2021 $ 0.035 $ 27,220 $ 0.035 $ 1,916

3/5/2020 3/19/2020 4/2/2020 $ 0.035 $ 27,117 $ — $ —

On May 5, 2021, the Company announced a dividend of $ 0.035 per share to holders of Common Stock and Class B Common Stock of record on June 17, 2021, which will be distributed on July 1, 2021.

During February 2019, the Company approved a dividend reinvestment plan (the “DRIP”), which allowed stockholders to designate all or a portion of the cash dividends on their shares of common stock for reinvestment in additional shares of the Company’s Common Stock.

Dividends settled in shares of Common Stock were not material during the three months ended March 31, 2021 and 2020.

The DRIP terminated in accordance with its terms on February 27, 2021.

Share Repurchase Program

In February 2019, the Company approved a share repurchase program (the “Share Repurchase Program”), which permits the Company to repurchase up to $ 150 million of the Company’s shares of Common Stock through February 27, 2021.

On March 23, 2020, the Company approved an increase of $ 75 million, inclusive of the amount then remaining under the Share Repurchase Program, in the authorized repurchase amount and an extension of the Share Repurchase Program through March 23, 2021.

The Company may effect these repurchases pursuant to one or more trading plans to be adopted in accordance with Rule 10b5-1 (each, a “10b5-1 plan”) under the Securities Exchange Act of 1934 (the “Exchange Act”), in privately negotiated transactions, in open market transactions, or pursuant to an accelerated share repurchase program.

The Company intends to conduct the Share Repurchase Program in accordance with Rule 10b-18 under the Exchange Act.

During the three and nine months ended September 30, 2020, there were no material repurchases of shares of Common Stock under the Share Repurchase Program.

As of September 30, 2020, the Company had approximately $ 75 million remaining in the Share Repurchase Program.

During the nine months ended September 30, 2019, the Company repurchased 24 million shares of Common Stock for approximately $ 150 million.

There were no share repurchases during the three months ended September 30, 2019.

All of the shares repurchased were treated as retirements and reduced the number of shares issued and outstanding.

In addition, the Company recorded the excess of the purchase price over the par value per share as a reduction to additional paid-in capital.

During February 2019, the Company approved a share repurchase program (the “Share Repurchase Program”), which authorized the Company to repurchase shares of the Company’s Common Stock (up to a certain amount).

There were no repurchases of any shares of Common Stock under the Share Repurchase Program during the three months ended March 31, 2021 and 2020.

The Share Repurchase Program terminated in accordance with its terms on March 23, 2021.

Accumulated Other Comprehensive Loss

During the three and nine months ended September 30, 2020, the Company reclassified $ 15 million and $ 31 million, respectively, of AOCI to interest expense, net, and $ 4 million and $ 8 million, respectively, of AOCI to income tax benefit associated with cash flow hedges.

There were no material reclassification adjustments associated with cash flow hedges during the three and nine months ended September 30, 2019.

As of September 30, 2020, approximately $ 66 million of AOCI associated with cash flow hedges is estimated to be reclassified to interest expense, net, within the next twelve months.

There were no material reclassifications out of AOCI during the three months ended March 31, 2021 and 2020.

As of March 31, 2021, approximately $ 60 million of AOCI associated with cash flow hedges is estimated to be reclassified to interest expense, net, within the next twelve months.

Share-based Compensation

Share-based compensation expense totaled $ 26 million and $ 19 million during the three months ended September 30, 2020 and 2019, respectively, and $ 75 million and $ 65 million during the nine months ended September 30, 2020 and 2019, respectively.

Share-based compensation expense totaled $ 16 million and $ 23 million during the three months ended March 31, 2021 and 2020, respectively.

Restricted Stock Units

During the nine months ended September 30, 2020, the Company granted approximately 12 million restricted stock units (“RSUs”) under the 2018 Omnibus Incentive Plan (the “2018 Plan”).

During the three months ended March 31, 2021, the Company granted approximately 5 million restricted stock units (“RSUs”) under the 2018 Omnibus Incentive Plan (the “2018 Plan”).

These RSUs are service-based awards with a three-year graded vesting period from the date of grant.

The fair value of the RSUs is equal to the closing price per share of the Company’s Common Stock on the date of grant, which resulted in a weighted-average grant date fair value of $ 7.74 .

During the nine months ended September 30, 2020, the Company granted approximately 9 million options under the 2018 Plan.

These options are service-based awards with a three-year graded vesting period from the date of grant and have an exercise price equal to the closing price per share of the Company’s common stock on the date of grant, which resulted in a weight-average exercise price of $ 5.31 , and a contractual term of ten years from the grant date.

The grant date fair values of options granted under the 2018 Plan were determined using the Black-Scholes valuation approach with the following assumptions:

For the Nine Months Ended September 30, 2020

Risk-free interest rate 0.51 % - 1.40 %

Expected exercise term (years) 6.0

Expected dividend yield 2.2 % - 2.7 %

Expected volatility 45 % - 46 %

The risk-free interest rate was based on U.S.

Treasury bonds with a zero-coupon rate.

The Company did not have sufficient historical exercise data, and, as such, the Company leveraged estimates from prior option valuations as its best estimate of expected exercise term.

The dividend yield was calculated by taking the annual dividend run-rate and dividing by the stock price at date of grant.

The stock price volatility was implied based upon an average of historical volatility of publicly traded companies in industries similar to the Company, as the Company did not have sufficient history to use as a basis for actual stock price volatility, as well as consideration for the Company’s debt to equity ratio.

During the nine months ended September 30, 2020, the weighted-average grant date fair value for options granted was $ 1.77 .

Net (Loss) Income Per Share

The Company applies the two-class method for computing and presenting net (loss) income per share for each class of common stock.

The two-class method allocates current period net (loss) income to each class of common stock and participating securities based on (i) dividends declared and (ii) participation rights in the remaining undistributed (losses) earnings.

Basic net (loss) income per share is computed by dividing the net (loss) income allocated to each class of common stock using the two-class method by the related weighted-average number of shares outstanding during the period.

The RSUs include retirement provisions that allow awards to continue to vest in accordance with the granted terms in its entirety when a participant reaches retirement eligibility, as long as 12 months of service have been provided since the date of grant.

RSUs are entitled to dividend equivalent units, which are granted as additional RSUs and are subject to the same vesting and forfeiture conditions as the underlying RSUs.

Net Loss Per Share

The Company applies the two-class method for computing and presenting net loss per share for each class of common stock.

The two-class method allocates current period net loss to each class of common stock and participating securities based on (i) dividends declared and (ii) participation rights in the remaining undistributed losses.

Basic net loss per share is computed by dividing the net loss allocated to each class of common stock using the two-class method by the related weighted-average number of shares outstanding during the period.

Diluted net loss per share gives effect to all securities representing potential common shares that were dilutive and outstanding during the period for each class of common stock.

Potential shares of Common Stock include (i) incremental shares of Common Stock calculated using the treasury stock method for share-based compensation awards and (ii) shares of Common Stock issuable upon the conversion of Class B Common Stock.

Potential shares of Class B Common Stock include (i) incremental shares of Class B Common Stock calculated using the treasury stock method for the period in which the Securities Purchase Agreement was outstanding prior to closing and (ii) incremental shares of Class B Common Stock calculated using the treasury stock method for Google’s option to purchase additional shares of Class B Common Stock prior to closing.

Potential shares of Common Stock include (i) incremental shares of Common

Stock calculated using the treasury stock method for share-based compensation awards, (ii) incremental shares of Common Stock issuable upon the conversion of Class B Common Stock, and (iii) incremental shares of Common Stock calculated using the treasury stock method for warrants to purchase additional shares of Common Stock that were issued in connection with a business combination.

For purposes of the diluted net loss per share of Common Stock computation, all potential shares of Common Stock that would be dilutive were excluded because their effect would be anti-dilutive.

As a result, basic net loss per share of Common Stock is equal to diluted net loss per share of Common Stock for the periods presented.

The computation of basic and diluted net (loss) income per share for each class of common stock for the periods presented was as follows:

For the Three Months Ended For the Nine Months Ended

September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

(in thousands, except per share amounts) Common Stock Class B Common Stock Common Stock Class B Common Stock Common Stock Class B Common Stock Common Stock Class B Common Stock

Allocation of net (loss) income - basic $ ( 113,479 ) $ 381 $ ( 181,630 ) $ — $ ( 519,841 ) $ ( 291 ) $ ( 352,157 ) $ —

Effect of dilutive potential shares of Class B common stock on allocated net loss — ( 1,498 ) — — — ( 2,185 ) — —

Allocation of net loss - diluted $ ( 113,479 ) $ ( 1,117 ) $ ( 181,630 ) $ — $ ( 519,841 ) $ ( 2,476 ) $ ( 352,157 ) $ —

Weighted-average shares outstanding - basic 760,913 8,331 739,852 — 760,203 2,797 748,500 —

Dilutive potential shares of Class B common stock — 8,309 — — — 2,790 — —

Weighted-average shares outstanding - diluted 760,913 16,640 739,852 — 760,203 5,587 748,500 —

Net (loss) income per share - basic $ ( 0.15 ) $ 0.05 $ ( 0.25 ) $ — $ ( 0.68 ) $ ( 0.10 ) $ ( 0.47 ) $ —

Net loss per share - diluted $ ( 0.15 ) $ ( 0.07 ) $ ( 0.25 ) $ — $ ( 0.68 ) $ ( 0.44 ) $ ( 0.47 ) $ —

For purposes of the diluted net loss per share of Class B Common Stock computation, basic net loss per share of Class B Common Stock is equal to diluted net loss per share of Class B Common Stock because there were no potential shares of Class B Common Stock outstanding, and the Company reported a net loss during the three months ended March 31, 2021.

The following table provides the computations of basic and diluted net loss per share for each class of common stock:

Three Months Ended

March 31, 2021 March 31, 2020

(in thousands, except per share amounts) Common Stock Class B Common Stock Common Stock Class B Common Stock

Allocation of net loss - basic and diluted $ ( 44,673 ) $ ( 3,221 ) $ ( 300,293 ) $ —

Weighted-average shares outstanding - basic and diluted 762,704 54,745 759,092 —

Net loss per share - basic and diluted $ ( 0.06 ) $ ( 0.06 ) $ ( 0.40 ) $ —

Unrecognized Tax Benefits

During the nine months ended September 30, 2020, the Company did not have a material change to its unrecognized tax benefits.

During the three months ended March 31, 2021, the Company did not have a material change to its unrecognized tax benefits.

The Company’s unrecognized tax benefits relate to tax years that remain subject to audit by the taxing authorities in the U.S.

2 unchanged sentences

Effective Tax Rate

The Company’s income tax benefit for the three months ended September 30, 2020 was $ 28 million, resulting in an effective tax rate for the period of 19.7 %.

The effective tax rate primarily represents the federal statutory rate of 21.0 %, a state statutory tax rate, net of federal benefits, of 2.5 %, and a 3.9 % unfavorable impact from non-deductible charges primarily due to the Defenders Acquisition.

Income tax benefit for the three months ended September 30, 2019 was $ 36 million, resulting in an effective tax rate for the period of 16.7 %.

The effective tax rate primarily represents the federal income tax rate of 21.0 %, a 21.9 % unfavorable impact from valuation allowances established on the net capital losses generated in the U.S.

and Canada related to the sale of the Company’s Canadian operations, a 5.6 % unfavorable impact from non-deductible goodwill impairment loss, offset by a 20.7 % favorable impact from net capital losses generated in the U.S.

and Canada related to the sale of the Company’s Canadian operations, and a 4.6 % favorable impact from amendments to prior year tax returns.

The Company’s income tax benefit for the nine months ended September 30, 2020 was $ 133 million, resulting in an effective tax rate for the period of 20.4 %.

The effective tax rate primarily represents the federal statutory rate of 21.0 %, a state statutory tax rate, net of federal benefits, of 2.9 %, a 3.0 % unfavorable impact from non-deductible charges primarily due to the Defenders Acquisition, and a 1.2 % unfavorable impact from an increase in valuation allowances primarily due to tax credits not expected to be utilized prior to expiration.

Income tax benefit for the nine months ended September 30, 2019 was $ 82 million, resulting in an effective tax rate for the period of 18.8 %.

The effective tax rate primarily represents the federal income tax rate of 21.0 %, an 11.0 % unfavorable impact from valuation allowances established on the net capital losses generated in the U.S.

and Canada related to the sale of the Company’s Canadian operations, a 2.8 % unfavorable impact from non-deductible goodwill impairment loss, offset by a 10.4 % favorable impact from net capital losses generated in the U.S.

and Canada related to the sale of the Company’s Canadian operations, and a 2.3 % favorable impact from amendments to prior year tax returns.

The Company’s income tax benefit for the three months ended March 31, 2021 was $ 15 million, resulting in an effective tax rate for the period of 23.3 %.

The effective tax rate primarily represents the federal statutory rate of 21.0 %, a state statutory tax rate, net of federal benefits, of 2.8 %, a 2.8 % favorable impact of share-based compensation, partially offset by a 1.6 % unfavorable impact of state legislative changes.

Income tax benefit for the three months ended March 31, 2020 was $ 78 million, resulting in an effective tax rate for the period of 20.6 %.

The effective tax rate primarily represents the federal income tax rate of 21.0 %, a state statutory tax rate, net of federal benefits, of 3.0 %, a 2.4 % unfavorable impact related to an increase in unrecognized tax benefits, and a 1.7 % unfavorable impact from an increase in valuation allowances primarily related to tax credits not expected to be utilized prior to expiration.

The effective tax rate can vary from period to period due to permanent tax adjustments, discrete items such as the settlement of income tax audits and changes in tax laws, as well as recurring factors such as changes in the overall state tax rate.

COVID-19 Pandemic

In response to the COVID-19 Pandemic, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law during March 2020 and included significant corporate income tax and payroll tax provisions aimed to provide economic relief to address the impact of the COVID-19 Pandemic.

The Company is continuing to assess these corporate tax provisions and has recognized favorable cash flow impacts related to the accelerated refund of previously generated alternative minimum tax credits, as well as from the deferral of remittance of certain 2020 payroll taxes, with 50% of the deferred amount due by the end of 2021, and the remainder due by the end of 2022.

The Company also expects to benefit from an increase in the interest expense limitation from 30% to 50% for tax years 2019 and 2020.

In response to the COVID-19 Pandemic, the American Rescue Plan Act of 2021 (the “2021 Rescue Act”) and the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) were signed into law during March 2021 and March 2020, respectively, and included significant corporate income tax and payroll tax provisions intended to provide economic relief to address the impact of the COVID-19 Pandemic.

During 2020, the Company recognized favorable cash flow impacts related to the accelerated refund of previously generated alternative minimum tax credits, as well as from the deferral of remittance of certain 2020 payroll taxes, with 50% of the deferred amount due by the end of 2021, and the remainder due by the end of 2022.

The Company also recognized a benefit from an increase in the interest expense limitation from 30% to 50% for tax years 2019 and 2020.

In connection with the 2021 Rescue Act, the Company noted risks of an unfavorable impact to the Company’s future results of operations and cash flows due to revised Internal Revenue Code Section 162(m) limits on the deduction for executive compensation, effective in tax years after 2026.

During the first quarter of 2021, various revenue raising corporate tax provisions were also proposed, including a potential increase in the corporate tax rate and the enactment of a minimum tax on book income.

The Company will continue to monitor and assess the potential unfavorable impacts of such proposals.

In addition, states have begun proposing and enacting legislation to address the unfavorable financial impacts of the COVID-19 Pandemic, which includes tax rate changes, decoupling from favorable federal legislation under the CARES Act (such as an increased interest expense limitation from 30% to 50%), and limiting the use of net operating losses.

As of September 30, 2020, there has been no material impact to the Company from these state legislative changes.

As of March 31, 2021, there has been no material impact to the Company from these state legislative changes.

However, the Company expects the trend to continue through the remainder of 2021, and these changes could have material impacts to the Company’s results of operations and cash flows.

2 unchanged sentences

Contractual Obligations

Except for certain commitments pursuant to the Commercial Agreement, there have been no material changes to the Company’s contractual obligations as compared to December 31, 2019.

During the three months ended March 31, 2021, the Company entered into various commitments to purchase certain parts used in the program to replace 3G and CDMA cellular equipment used in the Company’s security systems.

As of March 31, 2021, the Company had $ 85 million outstanding related to these obligations.

In addition, the Company entered into an agreement in February 2021 with a third party to purchase customer accounts, if certain conditions are met, up to approximately $ 67 million over the remaining course of the agreement.

The timing and ultimate amount of these purchases are uncertain.

There have been no other material changes to the Company’s contractual obligations as compared to December 31, 2020.

Legal Proceedings

13 unchanged sentences

The Company’s accrual for ongoing claims and lawsuits not within scope of an insurance program was not material and in most cases the Company has not accrued for any losses as the ultimate outcome or the range of possible loss cannot be estimated.

The Company’s accrual for ongoing claims and lawsuits within scope of an insurance program totaled $ 114 million and $ 105 million as of September 30, 2020 and December 31, 2019, respectively.

The Company’s accrual for ongoing claims and lawsuits within scope of an insurance program totaled $ 92 million and $ 89 million as of March 31, 2021 and December 31, 2020, respectively.

Environmental Matters

4 unchanged sentences

The Company is coordinating joint handling of both investigations and continues to fully cooperate with the respective authorities.

Shareholder Litigation

Five substantially similar shareholder class action lawsuits related to the IPO in January 2018 were filed in the Circuit Court of the Fifteenth Judicial Circuit in and for Palm Beach County, Florida in March, April, and May 2018 and were consolidated for discovery and trial and entitled In re ADT Inc.

Shareholder Litigation .

The consolidated complaint in that action asserts claims on behalf of a putative class of shareholder plaintiffs and sought to represent a class of similarly situated shareholders for alleged violations of the Securities Act of 1933, as amended (the “Securities Act”).

The complaint alleges that the Company defendants violated the Securities Act because the registration statement and prospectus used to effectuate the IPO were false and misleading in that they allegedly misled investors with respect to litigation involving the Company, the Company’s efforts to protect its intellectual property, and the competitive pressures faced by the Company.

A similar shareholder class action lawsuit entitled Perdomo v ADT Inc., also related to the IPO in January 2018, was filed in the U.S.

District Court for the Southern District of Florida in May 2018.

In September 2019, the parties reached an agreement in principle to settle both the state court and the federal court actions.

In connection with the agreement, the plaintiffs in the Perdomo action voluntarily dismissed the action without prejudice in October 2019.

The parties agreed to a Stipulation of Settlement in September 2020, subject to approval by the State Court.

In October 2020, the State Court entered an order preliminarily approving the settlement, providing for notice to settlement class members, and setting the date for a final approval hearing in January 2021.

California Independent Contractor Litigation

In August 2017, Jabra Shuheiber filed civil litigation in Marin County Superior Court on behalf of himself and two other individuals asserting wage and hour violations against the Company.

The action is entitled Jabra Shuheiber v.

ADT, LLC (Case Number CV 1702912, Superior Court, Marin County).

Shuheiber was the owner/operator of a sub-contractor, Maximum Protection, Inc.

(“MPI”), who employed the other two plaintiffs in the litigation.

In August 2018, in response to the California Supreme Court’s decision in Dynamex Operations West, Inc.

Superior Court of Los Angeles County , counsel for Mr.

Shuheiber provided the Company with a proposed amended complaint that modified the wage and hour claims such that they were brought on a class basis.

The proposed class is not clearly defined but appears to be composed of two groups of individuals:

1) individual owners of sub-contractors who performed services for the sub-contractor;

and 2) individuals with no ownership interest in a sub-contractor who were employed by the sub-contractor and provided services pursuant to a contract between the sub-contractor and the Company.

In October 2018, the Company answered the plaintiffs’ First Amended Complaint and filed a cross-complaint against the plaintiffs’ sub-contracting company for indemnification pursuant to the term of ADT’s sub-contract.

In November 2019, the parties reached a settlement agreement in principle.

The settlement has been documented and received preliminary approval from the court in July 2020.

Los Angeles Alarm Permit Class Action

5 unchanged sentences

In November 2018, the trial court granted the plaintiff’s motion for class certification and certified four subclasses of customers who received fines from the City of Los Angeles.

The parties reached a settlement agreement in principle in January 2020.

The settlement has been documented and a hearing on the parties’ motion for preliminary settlement approval and class certification has been scheduled for January 2021.

The case settled in January 2020, and the settlement received preliminary approval from the court in February 2021.

A hearing for final approval is scheduled in July 2021.

Wage and Hour Class Action

In January 2020, the Company acquired Defenders, which is defending against litigation brought by Teddy Archer and seven other security advisors who claim unpaid overtime under the Fair Labor Standards Act (“FLSA”), breach of contract under state law in all states, and a violation of state wage-hour laws in California, New Jersey, New York, and Washington.

In January 2020, the Company acquired Defenders, which is defending against litigation brought by Teddy Archer and seven other security advisors who claim unpaid overtime under the Fair Labor Standards Act (the “FLSA”), breach of contract under state law in all states, and a violation of state wage-hour laws in California, New Jersey, New York, and Washington.

The lawsuit was originally filed in March 2018 in the United States District Court for the District of Delaware.

3 unchanged sentences

Unauthorized Access by a Former Technician

In April 2020, after investigating a customer inquiry, the Company self-disclosed that a former technician based in Dallas, Texas had, during service visits, added his personal email address to 220 of the Company’s customers’ accounts, which provided this employee with varying levels of unauthorized personal access to such customers’ in-home security systems.

response, the Company initiated an affirmative outreach effort to notify all customers affected by this activity and to address their concerns.

Since the disclosure, three lawsuits have been filed against the Company.

In April 2020, after investigating a customer inquiry, the Company self-disclosed that a former technician based in Dallas, Texas had, during service visits, added his personal email address to approximately 200 of the Company’s customers’ accounts, which provided this employee with varying levels of unauthorized personal access to such customers’ in-home security systems.

In response, the Company initiated an affirmative outreach effort to notify all customers affected by this activity and to address their concerns.

Since the disclosure, four lawsuits have been filed against the Company, and the Company intervened in a fifth lawsuit filed against the former technician.

In May 2020, the Company was served with a class action complaint in a case captioned Shana Doty v.

3 unchanged sentences

The Company moved to dismiss the plaintiff’s amended complaint.

The court has not ruled on the motion.

In December 2020, the federal district court dismissed the causes of action for Intrusion Upon Seclusion and violation of the Computer Fraud and Abuse Act, and further ruled that plaintiff may not seek to hold the Company vicariously liable for any intentional torts committed by the former technician.

The Company’s motion was denied on plaintiff’s other claims.

In June 2020, the Company was served with a class action complaint in a case captioned Alexia Preddy v.

3 unchanged sentences

The Company moved to dismiss the plaintiff’s amended complaint and to compel arbitration.

The court has not ruled on the motions.

The Company was also served with a complaint filed in Texas state court by an individual Company customer and may be subject to future legal claims.

In December 2020, the federal district court granted the Company’s motion to compel arbitration.

The case is stayed and administratively closed pending arbitration.

The Company’s motion to dismiss was denied as moot.

In April 2021, the Company received notice that a new class action complaint had been filed in the U.S.

District Court for the Southern District of Florida on behalf of Randy Doty, the husband of the plaintiff in Shana Doty v.

The Company has not yet been formally served.

The claims alleged in the new complaint follow the claims asserted in Alexa Preddy v.

ADT LLC, the case which has been stayed pending arbitration.

The Company was previously served with a complaint filed in Texas state court by an individual Company customer in July 2020, intervened in a putative Texas state court class action filed against the former technician in August 2020, and may be subject to future legal claims.

Segment Information

Effective in the first quarter of 2021, the manner in which the Company’s Chief Executive Officer, who is the CODM, evaluates performance and makes decisions about how to allocate resources changed.

Therefore, the Company now reports results in two operating and reportable segments, CSB and Commercial, rather than a single operating and reportable segment.

Refer to Note 1 “Description of Business and Summary of Significant Accounting Policies,” for a description of the Company’s segments.

Where applicable, prior periods have been retrospectively adjusted to reflect the new operating and reportable segment structure.

The CODM uses Adjusted EBITDA, which is the segment profit measure, to evaluate segment performance.

Adjusted EBITDA is defined as net income or loss adjusted for (i) interest, (ii) taxes, (iii) depreciation and amortization, including depreciation of subscriber system assets and other fixed assets and amortization of dealer and other intangible assets, (iv) amortization of deferred costs and deferred revenue associated with subscriber acquisitions, (v) share-based compensation expense, (vi) merger, restructuring, integration, and other, (vii) losses on extinguishment of debt, (viii) radio conversion costs, net, (ix) financing and consent fees, (x) acquisition related adjustments, and (xi) other charges and non-cash items.

The CODM does not review the Company's assets by segment;

therefore, such information is not presented.

The following table presents total revenue by segment and a reconciliation to consolidated total revenue:

Three Months Ended

(in thousands) March 31, 2021 March 31, 2020

CSB $ 1,038,605 $ 1,111,167

Commercial 266,099 258,585

Total Revenue $ 1,304,704 $ 1,369,752

The following table presents Adjusted EBITDA by segment and a reconciliation to consolidated net loss before taxes:

Three Months Ended

(in thousands) March 31, 2021 March 31, 2020

Adjusted EBITDA by segment:

CSB $ 519,478 $ 537,075

Commercial 22,653 2,414

Total $ 542,131 $ 539,489

Reconciliation to consolidated net loss before taxes:

Total segment Adjusted EBITDA $ 542,131 $ 539,489

Interest expense, net 47,724 225,367

Depreciation and intangible asset amortization 469,809 489,024

Amortization of deferred subscriber acquisition costs 28,642 22,627

Amortization of deferred subscriber acquisition revenue ( 37,159 ) ( 29,477 )

Share-based compensation expense 16,019 23,499

Merger, restructuring, integration, and other 20,507 108,794

Loss on extinguishment of debt 156 65,843

Radio conversion costs, net (1)

Financing and consent fees (2)

Acquisition related adjustments (3)

( 248 ) 1,377

( 2,937 ) ( 1,197 )

Net loss before taxes $ ( 62,457 ) $ ( 378,257 )

___________________

(1) Represents costs, net of any incremental revenue earned, associated with replacing cellular technology used in many of the Company’s security systems pursuant to a replacement program.

(2) Represents fees expensed associated with financing transactions.

(3) Represents amortization of purchase accounting adjustments and compensation arrangements related to acquisitions.

(4) Represents other charges and non-cash items.

Related Party Transactions

The Company’s related party transactions primarily relate to management, consulting, and transaction advisory services provided by Apollo, as well as monitoring and related services provided to or products and services received from other entities controlled by Apollo.

There were no significant related party transactions for the three or nine months ended September 30, 2020 and 2019.

During October 2020, the Company entered into a master services agreement with Rackspace US, Inc., a related party, for the provision of cloud storage, equipment, and services to facilitate the implementation of the Company’s cloud migration strategy for certain applications.

The master services agreement includes a minimum purchase commitment of $ 50 million over a 7 year term.

There were no significant related party transactions as of and for the three months ended March 31, 2021 and three months ended March 31, 2020.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements