What changed in this filing

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Item 1. Financial Statements

2021-08-04 compared with 2021-05-05 · 210 added, 159 removed, 598 unchanged (38% of the section changed)

3 unchanged sentences

(in thousands, except share and per share data)

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Current assets:

28 unchanged sentences

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.

zero issued and outstanding as of June 30, 2021 and December 31, 2020.

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

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

issued and outstanding shares of 776,309,837 and 771,013,638 as of June 30, 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.

issued and outstanding shares of 54,744,525 as of June 30, 2021 and December 31, 2020.

Additional paid-in capital 6,665,145 6,640,763

7 unchanged sentences

(in thousands, except per share data)

Three Months Ended

March 31, 2021 March 31, 2020

Three Months Ended Six Months Ended

June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

Monitoring and related services $ 1,083,520 $ 1,041,379 $ 2,146,286 $ 2,087,336

5 unchanged sentences

Merger, restructuring, integration, and other 4,804 12,038 25,311 120,832

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

Operating (loss) income ( 1,879 ) 50,422 ( 18,259 ) ( 38,934 )

Interest expense, net ( 166,525 ) ( 187,265 ) ( 214,249 ) ( 412,632 )

14 unchanged sentences

(in thousands)

Three Months Ended

March 31, 2021 March 31, 2020

Three Months Ended Six Months Ended

June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

Net loss $ ( 125,850 ) $ ( 106,741 ) $ ( 173,744 ) $ ( 407,034 )

8 unchanged sentences

(in thousands)

Three Months Ended March 31, 2021

Three Months Ended June 30, 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

6 unchanged sentences

Balances at end of period 776,310 54,745 $ 7,763 $ 547 $ 6,665,145 $ ( 3,724,139 ) $ ( 94,694 ) $ 2,854,622

Three Months Ended March 31, 2020

Three Months Ended June 30, 2020

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

Net loss — — — — — ( 106,741 ) — ( 106,741 )

Other comprehensive income, net of tax — — — — — — 8,553 8,553

Dividends, including dividends reinvested in common stock 1 — — — 4 ( 26,767 ) — ( 26,763 )

Share-based compensation expense — — — — 24,828 — — 24,828

Transactions related to employee share-based compensation plans and other 280 — 3 — ( 106 ) ( 485 ) — ( 588 )

Balances at end of period 770,429 — $ 7,704 $ — $ 6,139,135 $ ( 3,206,845 ) $ ( 145,879 ) $ 2,794,115

See Notes to Condensed Consolidated Financial Statements

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

Six Months Ended June 30, 2021

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 — — — — — ( 173,744 ) — ( 173,744 )

Other comprehensive income, net of tax — — — — — — 23,921 23,921

Dividends, including dividends reinvested in common stock — — — — 4 ( 58,320 ) — ( 58,316 )

Share-based compensation expense — — — — 29,606 — — 29,606

Transactions related to employee share-based compensation plans and other 5,296 — 53 — ( 5,228 ) ( 1,006 ) — ( 6,181 )

Balances at end of period 776,310 54,745 $ 7,763 $ 547 $ 6,665,145 $ ( 3,724,139 ) $ ( 94,694 ) $ 2,854,622

Six Months Ended June 30, 2020

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

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

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(in thousands)

Three Months Ended

March 31, 2021 March 31, 2020

Six Months Ended

June 30, 2021 June 30, 2020

Cash flows from operating activities:

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Other financing, net ( 34,761 ) ( 12,910 )

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

Net cash used in financing activities ( 59,740 ) ( 96,027 )

Net decrease in cash and cash equivalents and restricted cash and restricted cash equivalents ( 51,242 ) ( 2,594 )

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

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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.

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 of the Company.

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

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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.

Where applicable, 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;

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

and (iii) dedicated corporate and other costs.

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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.

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

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.

During March 2020, the World Health Organization declared the outbreak of a novel coronavirus as a pandemic (the “COVID-19 Pandemic”).

While responses have varied by individuals, businesses, and state and local municipalities, the COVID-19 Pandemic has had certain notable adverse impacts on general economic conditions, including the temporary closures of many businesses, increased governmental regulations, supply chain disruptions, and changes in 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, such as (i) detailed protocols for infectious disease safety for employees, (ii) employee daily wellness checks, and (iii) certain work from home actions, including for the majority of the Company’s call center professionals.

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.

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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

(in thousands) June 30, 2021 December 31, 2020

Cash and cash equivalents $ 150,439 $ 204,998

2 unchanged sentences

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

The Company capitalizes certain costs associated with transactions in which the Company retains ownership of the security system as well as incremental selling expenses related to acquiring customers.

These costs include equipment, installation costs, and other incremental costs and are recorded in subscriber system assets, net, and deferred subscriber acquisition costs, net, in the Condensed Consolidated Balance Sheets.

These assets embody a probable future economic benefit as they contribute to the generation of future monitoring and related services revenue for the Company.

Subscriber system assets represent capitalized equipment and installation costs incurred in connection with transactions in which the Company retains ownership of the security system.

The Company capitalizes certain costs including equipment, installation, and other incremental costs associated with transactions in which the Company retains ownership of the security system, as well as selling expenses that are incremental to acquiring customers.

These costs are recorded in subscriber system assets, net, and deferred subscriber acquisition costs, net, in the Condensed Consolidated Balance Sheets as these assets embody a probable future economic benefit as they contribute to the generation of future monitoring and related services revenue for the Company.

Upon customer termination, the Company may retrieve such assets.

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.

Subscriber system assets represent capitalized equipment and installation costs incurred in connection with transactions in which the Company retains ownership of the security system.

Depreciation expense relating to subscriber system assets, which is included in depreciation and intangible asset amortization in the Condensed Consolidated Statements of Operations, was $ 124 million and $ 126 million for the three months ended June 30, 2021 and 2020, respectively, and $ 247 million and $ 259 million for the six months ended June 30, 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

(in thousands) June 30, 2021 December 31, 2020

Gross carrying amount $ 5,148,559 $ 4,815,286

1 unchanged sentence

Subscriber system assets, net $ 2,761,597 $ 2,663,228

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 $ 29 million and $ 23 million for the three months ended March 31, 2021 and 2020, respectively.

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

Amortization expense relating to deferred subscriber acquisition costs, which is included in selling, general, and administrative expenses in the Condensed Consolidated Statements of Operations was $ 30 million and $ 23 million for the three months ended June 30, 2021 and 2020, respectively, and $ 59 million and $ 45 million for the six months ended June 30, 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.

2 unchanged sentences

Accrued expenses and other current liabilities consisted of the following:

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

(in thousands) June 30, 2021 December 31, 2020

Accrued interest $ 122,445 $ 123,935

6 unchanged sentences

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 estimates the range of net costs over the course of this program at $ 250 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 June 30, 2021, the Company has incurred $ 196 million of net costs, of which $ 119 million has been incurred during 2021.

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

1 unchanged sentence

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.

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

As of June 30, 2021, the Company provided services to approximately 800 thousand customer sites that transmit signals via 3G or CDMA networks, of which approximately 80% have sunset dates in early 2022.

Given the current network retirement dates, the Company expects most of the remaining 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.

However, as a result of recent worldwide shortages for certain electronic components, the Company expects to continue to replace 3G radios primarily using traditional methods and to use Cell Bounce product to complement these traditional methods to the extent possible.

During the three months ended June 30, 2021 and 2020, the Company incurred radio conversion costs associated with these replacement programs and cellular network conversions of $ 71 million and $ 14 million, respectively, and recognized incremental radio conversion revenue of $ 10 million and $ 9 million, respectively.

During the six months ended June 30, 2021 and 2020, the Company incurred radio conversion costs associated with these replacement programs and cellular network conversions of $ 140 million and $ 29 million, respectively, and recognized incremental radio conversion revenue of $ 21 million and $ 18 million, respectively.

Radio conversion costs and radio conversion revenue are included in selling, general, and administrative expenses and monitoring and related services revenue, respectively, in the Condensed Consolidated Statements of Operations.

Fair Value of Financial Instruments

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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 totaled $ 41 million and $ 143 million as of March 31, 2021 and December 31, 2020, respectively.

Cash Equivalents - Included in cash and cash equivalents are investments in money market mutual funds, which totaled $ 41 million and $ 143 million as of June 30, 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.

2 unchanged sentences

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

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

(in thousands) Carrying

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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

June 30, 2021 December 31, 2020

(in thousands) Carrying

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These fair values are primarily calculated using discounted cash flow models that utilize observable inputs, such as quoted forward interest rates, and incorporate credit risk adjustments to reflect the risk of default by the counterparty or the Company.

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

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

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 $ 76 million and $ 83 million as of March 31, 2021 and December 31, 2020, 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 June 30, 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.

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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.

As of June 30, 2021, this guidance had no impact on the Condensed Consolidated Financial Statements.

However, 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 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.

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 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 (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.

Deferred subscriber acquisition revenue is deferred and recorded as deferred subscriber acquisition revenue in the Condensed Consolidated Balance Sheets upon initiation of a monitoring contract.

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 $ 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.

Upon initiation of a monitoring contract, the portion of the transaction price associated with the material right is deferred and recorded as deferred subscriber acquisition revenue in the Condensed Consolidated Balance Sheets.

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 related amortization of subscriber system assets and deferred subscriber acquisition costs.

Amortization of deferred subscriber acquisition revenue was $ 41 million and $ 30 million for the three months ended June 30, 2021 and 2020, respectively, and $ 78 million and $ 59 million for the six months ended June 30, 2021 and 2020, respectively.

In transactions involving systems sold outright to the customer (referred to as outright sales), 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 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.

The portion of the transaction price 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.

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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.

Revenue from product sales related to systems sold under a customer-owned model was $ 178 million and $ 259 million for the three months ended June 30, 2021 and 2020, respectively, and $ 381 million and $ 553 million for the six months ended June 30, 2021 and 2020, respectively.

Cost of revenue from product sales related to systems sold under a customer-owned model was $ 147 million and $ 191 million for the three months ended June 30, 2021 and 2020, respectively, and $ 307 million and $ 403 million for the six months ended June 30, 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.

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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.

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

Three Months Ended Six Months Ended

(in thousands) June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

Monitoring and related services $ 965,233 $ 935,957 $ 1,916,481 $ 1,873,989

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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.

As a result, the Company began transitioning 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.

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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 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.

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

The following table presents changes in the allowance for credit losses:

Six Months Ended June 30,

(in thousands) 2021 2020 (1)

Beginning balance $ 68,342 $ 42,960

Provision for credit losses 25,745 50,506

Write-offs, net of recoveries (2)

( 31,867 ) ( 34,425 )

Ending balance $ 62,220 $ 59,041

________________

(1) Beginning balance reflected is subsequent to the adoption of ASU 2016-13, Measurement of Credit Losses on Financial Instrument, and related amendments (“CECL”) on January 1, 2020, which introduced the current expected credit losses model.

The impact was not material.

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

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.

During February 2020, the Company introduced a new retail installment contract option that allows qualifying residential customers to pay 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.

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

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

As of June 30, 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 reassessed each reporting period.

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

The allowance for credit losses on retail installment contract receivables is recognized at inception and reassessed each reporting period.

As of June 30, 2021 and December 31, 2020, the allowance for credit losses was not material and primarily related to retail installment contract receivables from outright sales transactions.

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

(in thousands) June 30, 2021 December 31, 2020

Retail installment contract receivables, gross $ 230,517 $ 145,957

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Retail installment contract receivables, net $ 228,555 $ 141,591

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.

As of June 30, 2021 and December 31, 2020, retail installment contract receivables, net, used as collateral for borrowings under the Receivables Facility were $ 193 million and $ 109 million, respectively.

Contract Assets, net

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The Company records an allowance for credit losses against its contract assets for expected 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 contract assets was not material for the periods presented.

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

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

(in thousands) June 30, 2021 December 31, 2020

Contract assets, gross $ 143,683 $ 161,563

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Contract assets, net $ 121,785 $ 132,005

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

The Company recognized approximately $ 22 million and $ 125 million of contract assets during the six months ended June 30, 2021 and 2020, respectively.

Company as Lessor

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Company as Lessee

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.

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.

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

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Leases ( in thousands )

Presentation Classification March 31, 2021 December 31, 2020

Presentation Classification June 30, 2021 December 31, 2020

Operating Current Prepaid expenses and other current assets $ 579 $ 684

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_________________

(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.

(1) Finance right-of-use assets are recorded net of accumulated depreciation of approximately $ 78 million and $ 67 million as of June 30, 2021 and December 31, 2020, respectively.

The following table presents the components of total lease cost:

Three Months Ended

Three Months Ended Six Months Ended

Lease Cost ( in thousands )

March 31, 2021 March 31, 2020

June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

Operating lease cost $ 12,159 $ 14,312 $ 25,052 $ 28,912

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

Three Months Ended

Six Months Ended

Other information ( in thousands )

March 31, 2021 March 31, 2020

June 30, 2021 June 30, 2020

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

5 unchanged sentences

Finance lease liabilities $ 17,353 $ 7,084

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

During the six months ended June 30, 2021, total consideration related to business acquisitions was approximately $ 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.

During the six months ended June 30, 2020, other business acquisitions were not material.

Goodwill and Other Intangible Assets

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.

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

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

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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:

The following table presents changes in the carrying amount of goodwill by reportable segment during the six months ended June 30, 2021:

(in thousands) CSB Commercial Total Goodwill

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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.

The Company had no accumulated goodwill impairment losses as of June 30, 2021 and December 31, 2020.

There were no material measurement period adjustments to purchase price allocations during the six months ended June 30, 2021.

Other Intangible Assets

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

June 30, 2021 December 31, 2020

(in thousands) Gross Carrying

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Intangible assets $ 11,454,482 $ ( 5,805,018 ) $ 5,649,464 $ 11,405,302 $ ( 5,498,612 ) $ 5,906,690

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

The following table presents changes in the net carrying amount of contracts and related customer relationships during the six months ended June 30, 2021:

(in thousands)

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Ending balance $ 3,185,498

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.

During the six months ended June 30, 2021, the Company paid $ 340 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 during the six months ended June 30, 2021 was 13 years.

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.

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

Three Months Ended

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

Three Months Ended Six Months Ended

(in thousands) June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

Definite-lived intangible asset amortization expense $ 300,208 $ 305,407 $ 599,535 $ 612,363

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.

During the first quarter of 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:

The Company’s debt was comprised of the following as of June 30, 2021:

(in thousands, except as otherwise indicated)

Balance as of

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

Debt Description Issued Maturity Interest Rate Interest Payable June 30, 2021 December 31, 2020

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

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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:

Significant changes in the Company’s debt during the six months ended June 30, 2021 were as follows:

First Lien Credit Agreement

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 %.

The Company’s first lien credit agreement, dated as of July 1, 2015 (together with subsequent amendments and restatements, the “First Lien Credit Agreement”), contains a first lien term loan facility (the “First Lien Term Loan due 2026”) and a first lien revolving credit facility (the “First Lien Revolving Credit Facility”).

In January 2021, the Company amended and restated its First Lien Credit Agreement to refinance 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.

As of June 30, 2021, the Company had an available borrowing capacity of $ 400 million under its First Lien Revolving Credit Facility and no borrowings outstanding.

Subsequent Event:

Amendment and Restatement dated as of July 2, 2021

In July 2021, the Company further amended and restated the First Lien Credit Agreement with respect to the First Lien Revolving Credit Facility, which extended its maturity date to June 23, 2026, subject to certain conditions, and obtained an additional $ 175 million of commitments.

After giving effect to the Amendment and Restatement dated as of July 2, 2021, aggregate commitments under the First Lien Revolving Credit Facility were $ 575 million.

Receivables Facility

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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 Company obtains financing by first 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 these 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).

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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 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.

During the six months ended June 30, 2021, the Company received proceeds of $ 71 million under the Receivables Facility and repaid $ 17 million.

As of June 30, 2021 and December 31, 2020, the Company had outstanding balances of $ 130 million and $ 76 million, respectively.

As of June 30, 2021, the Company had an uncommitted available borrowing capacity of $ 70 million under the Receivables Facility.

The Receivables Facility did not have a material impact to the Condensed Consolidated Statements of Operations during the three or six months ended June 30, 2021 and 2020.

Subsequent Event:

Amendment and Restatement of the Receivables Facility

In July 2021, the Company entered into a Receivables Financing Agreement (the “Receivables Financing Agreement”), which amended and restated the Receivables Purchase Agreement related to the Receivables Facility.

The Receivables Financing Agreement, among other things, maintains an uncommitted secured lending arrangement among the parties, and provides for certain associated revisions to funding, prepayment, reporting, and similar mechanics;

and make certain revisions relating to and facilitating the potential future syndication of the loans made under the Receivables Facility to other lenders.

Variable Interest Entity

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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 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.

As of June 30, 2021 and December 31, 2020, the SPE’s assets and liabilities primarily consisted of unbilled retail installment contract receivables, net, of $ 193 million and $ 109 million, respectively, and borrowings under the Receivables Facility of $ 130 million and $ 76 million, respectively.

Loss on Extinguishment of Debt

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.

During the six months ended June 30, 2021, loss on extinguishment was not material.

During the six months ended June 30, 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.

Other Subsequent Events

In July 2021, the Company issued $ 1.0 billion aggregate principal amount of 4.125 % first-priority senior secured notes due 2029 (the “First Lien Notes Due 2029”).

The First Lien Notes Due 2029 will mature on August 1, 2029 with semi-annual interest payment dates of February 1 and August 1 of each year, beginning February 1, 2022.

The Company intends to use the proceeds from the issuance of the First Lien Notes Due 2029, along with cash on hand, to redeem all of the $ 1.0 billion outstanding aggregate principal amount of the Company’s 3.50 % notes due 2022 (the “ADT Notes due 2022”) that mature on July 15, 2022, and pay related fees and expenses in connection with these transactions.

In July 2021, the Company issued a Notice of Redemption with respect to all of the outstanding ADT Notes Due 2022 and expects to redeem the ADT Notes Due 2022 on August 28, 2021, at a redemption price calculated pursuant to the ADT Notes Due 2022 Indenture, plus accrued and unpaid interest.

Derivative Financial Instruments

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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 ):

The following table presents the Company’s interest rate swaps as of June 30, 2021 and December 31, 2020 ( in thousands ):

Execution Maturity Designation Notional Amount

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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 unrealized impact of interest rate swap contracts recognized in interest expense, net, in the Condensed Consolidated Statements of Operations includes losses of $ 14 million and $ 28 million during the three months ended June 30, 2021 and 2020, respectively, and a $ 92 million gain and a $ 98 million loss during the six months ended June 30, 2021 and 2020, respectively.

During the six months ended June 30, 2021 and 2020, the Company paid $ 28 million and $ 11 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

(in thousands) June 30, 2021 December 31, 2020

Accrued expenses and other current liabilities $ 63,841 $ 65,462

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Fair value of interest rate swaps $ 183,783 $ 275,840

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.

As of June 30, 2021 and December 31, 2020, AOCI, net of tax, related to cash flow hedges was $ 94 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.

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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

The following table presents the Company’s dividends declared on common stock during the six months ended June 30, 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

Six Months Ended June 30, 2021

5/5/2021 6/17/2021 7/1/2021 $ 0.035 $ 27,268 $ 0.035 $ 1,916

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

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.

Total $ 0.070 $ 54,488 $ 0.070 $ 3,832

Six Months Ended June 30, 2020

5/7/2020 6/18/2020 7/2/2020 $ 0.035 $ 26,767 $ — $ —

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

Total $ 0.070 $ 53,884 $ — $ —

Subsequent Event - On August 4, 2021, the Company announced a dividend of $ 0.035 per share to holders of Common Stock and Class B Common Stock of record on September 16, 2021, which will be distributed on October 5, 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.

Prior to termination, dividends settled in shares of Common Stock were not material during the three and six months ended June 30, 2021 and 2020.

Share Repurchase Program

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.

Prior to termination, repurchases of shares of Common Stock under the Share Repurchase Program were not material during the three and six months ended June 30, 2021 and 2020.

Accumulated Other Comprehensive Loss

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.

During the three months ended June 30, 2021 and 2020, the Company reclassified out of AOCI $ 15 million and $ 11 million, respectively, to interest expense, net, and $ 4 million and $ 3 million, respectively, to income tax benefit associated with cash flow hedges.

During the six months ended June 30, 2021 and 2020, the Company reclassified out of AOCI $ 30 million and $ 16 million, respectively, to interest expense, net, and $ 7 million and $ 4 million, respectively, to income tax benefit associated with cash flow hedges.

As of June 30, 2021, approximately $ 54 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 $ 16 million and $ 23 million during the three months ended March 31, 2021 and 2020, respectively.

Share-based compensation expense totaled $ 14 million and $ 25 million for the three months ended June 30, 2021 and 2020, respectively, and $ 30 million and $ 48 million for the six months ended June 30, 2021 and 2020, respectively.

Restricted Stock Units

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.

During the six months ended June 30, 2021, the Company granted approximately 5.8 million restricted stock units (“RSUs”) under the 2018 Omnibus Incentive Plan (the “2018 Plan”).

These RSUs are service-based awards, primarily 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 $ 7.83 .

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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, (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.

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.

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.

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 (i) there were no potential shares of Class B Common Stock outstanding and (ii) the Company reported a net loss during the three and six months ended June 30, 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

Three Months Ended Six Months Ended

June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

(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 - basic and diluted $ ( 117,446 ) $ ( 8,404 ) $ ( 106,741 ) $ — $ ( 162,109 ) $ ( 11,635 ) $ ( 407,034 ) $ —

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Unrecognized Tax Benefits

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

During the six months ended June 30, 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.

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Effective Tax Rate

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 Company’s income tax benefit for the three months ended June 30, 2021 was $ 41 million, resulting in an effective tax rate for the period of 24.6 %.

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 %, and a 0.6 % favorable impact from prior year tax return adjustments.

Income tax benefit for the three months ended June 30, 2020 was $ 28 million, resulting in an effective tax rate for the period of 20.7 %.

The effective tax rate primarily represents the federal statutory rate of 21.0 %, a state statutory tax rate, net of federal benefits, of 2.9 %, a 9.7 % unfavorable impact from non-deductible charges primarily due to the Defenders Acquisition, partially offset by a 6.7 % favorable impact related to a decrease in unrecognized tax benefits.

The Company’s income tax benefit for the six months ended June 30, 2021 was $ 56 million, resulting in an effective tax rate for the period of 24.2 %.

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 %, and a 1.0 % favorable impact of share-based compensation.

Income tax benefit for the six months ended June 30, 2020 was $ 106 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 2.8 % unfavorable impact from non-deductible charges primarily due to the Defenders Acquisition, and a 1.3 % unfavorable impact from an increase in valuation allowances primarily due 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.

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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 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.

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.

The Company will continue to assess the impacts as states finalize and enact these legislative changes.

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Contractual Obligations

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.

During the six months ended June 30, 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 June 30, 2021, the Company had $ 55 million outstanding related to these obligations.

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

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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 $ 92 million and $ 89 million as of March 31, 2021 and December 31, 2020, respectively.

The Company’s accrual for ongoing claims and lawsuits within scope of an insurance program totaled $ 93 million and $ 89 million as of June 30, 2021 and December 31, 2020, respectively.

Environmental Matters

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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.

A hearing for final approval has been continued until August 2021.

Wage and Hour Class Action

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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.

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

Four of these lawsuits are putative class actions and three are individual claims.

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

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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.

In April 2021, the Company accepted service of a new class action complaint 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.

The claims alleged in the new complaint are substantially similar to 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.

The Company also intervened in a putative Texas state court class action filed against the former technician in August 2020, where the plaintiff asserts a cause of action for intrusion upon seclusion and seeks injunctive relief, and may be subject to future legal claims.

Segment Information

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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.

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;

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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

Three Months Ended Six Months Ended

(in thousands) June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

CSB $ 1,022,647 $ 1,102,186 $ 2,061,252 $ 2,213,353

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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

Three Months Ended Six Months Ended

(in thousands) June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

Adjusted EBITDA by segment:

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Radio conversion costs, net (1)

60,635 5,031 119,364 11,670

Financing and consent fees (2)

Acquisition related adjustments (3)

399 10 3,745 5,260

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(2) Represents fees expensed associated with financing transactions.

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

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

1 unchanged sentence

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 as of and for the three months ended March 31, 2021 and three months ended March 31, 2020.

There were no significant related party transactions for the three or six months ended June 30, 2021 and 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