What changed in this filing

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Item 1. Financial Statements

2021-11-09 compared with 2021-08-04 · 378 added, 307 removed, 501 unchanged (58% of the section changed)

3 unchanged sentences

(in thousands, except share and per share data)

June 30, 2021 December 31, 2020

September 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 June 30, 2021 and December 31, 2020.

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

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

issued and outstanding shares of 776,309,837 and 771,013,638 as of June 30, 2021 and December 31, 2020, respectively.

issued and outstanding shares of 776,410,398 and 771,013,638 as of September 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 June 30, 2021 and December 31, 2020.

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

Additional paid-in capital 6,677,875 6,640,763

7 unchanged sentences

(in thousands, except per share data)

Three Months Ended Six Months Ended

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

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

Monitoring and related services $ 1,098,389 $ 1,045,677 $ 3,244,675 $ 3,133,013

5 unchanged sentences

Merger, restructuring, integration, and other ( 6,723 ) ( 6,117 ) 18,588 114,715

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

Operating income 23,096 62,886 4,837 23,952

Interest expense, net ( 133,275 ) ( 156,759 ) ( 347,524 ) ( 569,391 )

4 unchanged sentences

Net loss $ ( 109,129 ) $ ( 113,098 ) $ ( 282,873 ) $ ( 520,132 )

Net loss per share - basic and diluted:

Net (loss) income per share - basic:

Common stock $ ( 0.13 ) $ ( 0.15 ) $ ( 0.35 ) $ ( 0.68 )

Class B common stock $ ( 0.13 ) $ 0.05 $ ( 0.35 ) $ ( 0.10 )

Weighted-average shares outstanding - basic and diluted:

Weighted-average shares outstanding - basic:

Common stock 766,814 760,913 765,162 760,203

Class B common stock 54,745 8,331 54,745 2,797

Net loss per share - diluted:

Common stock $ ( 0.13 ) $ ( 0.15 ) $ ( 0.35 ) $ ( 0.68 )

Class B common stock $ ( 0.13 ) $ ( 0.07 ) $ ( 0.35 ) $ ( 0.44 )

Weighted-average shares outstanding - diluted:

Common stock 766,814 760,913 765,162 760,203

Class B common stock 54,745 16,640 54,745 5,587

See Notes to Condensed Consolidated Financial Statements

2 unchanged sentences

(in thousands)

Three Months Ended Six Months Ended

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

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

Net loss $ ( 109,129 ) $ ( 113,098 ) $ ( 282,873 ) $ ( 520,132 )

8 unchanged sentences

(in thousands)

Three Months Ended June 30, 2021

Three Months Ended September 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

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

Beginning balance 776,310 54,745 $ 7,763 $ 547 $ 6,665,145 $ ( 3,724,139 ) $ ( 94,694 ) $ 2,854,622

Net loss — — — — — ( 109,129 ) — ( 109,129 )

Other comprehensive income, net of tax — — — — — — 11,788 11,788

Dividends, including dividends reinvested in common stock — — — — — ( 29,184 ) — ( 29,184 )

Dividends — — — — — ( 29,186 ) — ( 29,186 )

Share-based compensation expense — — — — 16,242 — — 16,242

Transactions related to employee share-based compensation plans and other 100 — 1 — ( 3,512 ) ( 510 ) — ( 4,021 )

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 June 30, 2020

Ending balance 776,410 54,745 $ 7,764 $ 547 $ 6,677,875 $ ( 3,862,964 ) $ ( 82,906 ) $ 2,740,316

Three Months Ended September 30, 2020

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

Beginning balance 770,429 — $ 7,704 $ — $ 6,139,135 $ ( 3,206,845 ) $ ( 145,879 ) $ 2,794,115

Net loss — — — — — ( 113,098 ) — ( 113,098 )

Other comprehensive income, net of tax — — — — — — 11,591 11,591

Issuance of common stock, net of expenses — 54,745 — 547 447,088 — — 447,635

Dividends, including dividends reinvested in common stock 1 — — — 4 ( 28,963 ) — ( 28,959 )

1 unchanged sentence

Transactions related to employee share-based compensation plans and other 293 — 3 — 1,208 ( 450 ) — 761

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

Ending balance 770,723 54,745 $ 7,707 $ 547 $ 6,613,866 $ ( 3,349,356 ) $ ( 134,288 ) $ 3,138,476

See Notes to Condensed Consolidated Financial Statements

2 unchanged sentences

(in thousands)

Six Months Ended June 30, 2021

Nine Months Ended September 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

Beginning balance 771,014 54,745 $ 7,710 $ 547 $ 6,640,763 $ ( 3,491,069 ) $ ( 118,615 ) $ 3,039,336

Net loss — — — — — ( 282,873 ) — ( 282,873 )

3 unchanged sentences

Transactions related to employee share-based compensation plans and other 5,396 — 54 — ( 8,740 ) ( 1,516 ) — ( 10,202 )

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

Ending balance 776,410 54,745 $ 7,764 $ 547 $ 6,677,875 $ ( 3,862,964 ) $ ( 82,906 ) $ 2,740,316

Nine Months Ended September 30, 2020

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

Beginning balance 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 )

1 unchanged sentence

Other comprehensive loss, net of tax — — — — — — ( 75,912 ) ( 75,912 )

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

Issuance of common stock, net of expenses 16,279 54,745 163 547 560,766 — — 561,476

Dividends, including dividends reinvested in common stock 2 — — — 11 ( 82,847 ) — ( 82,836 )

1 unchanged sentence

Transactions related to employee share-based compensation plans and other 820 — 8 — 929 ( 2,027 ) — ( 1,090 )

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

Ending balance 770,723 54,745 $ 7,707 $ 547 $ 6,613,866 $ ( 3,349,356 ) $ ( 134,288 ) $ 3,138,476

See Notes to Condensed Consolidated Financial Statements

2 unchanged sentences

(in thousands)

Six Months Ended

June 30, 2021 June 30, 2020

Nine Months Ended September 30,

Cash flows from operating activities:

11 unchanged sentences

Other non-cash items, net 99,654 103,688

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

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

Deferred subscriber acquisition costs ( 234,715 ) ( 170,247 )

10 unchanged sentences

Cash flows from financing activities:

Proceeds from issuance of common stock — 450,000

Proceeds from long-term borrowings 1,010,729 2,640,000

5 unchanged sentences

Other financing, net ( 50,306 ) ( 25,781 )

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

Cash and cash equivalents and restricted cash and restricted cash equivalents at end of period $ 156,505 $ 46,142

Supplemental schedule of non-cash investing and financing activities:

Net cash (used in) provided by financing activities ( 124,081 ) 249,156

Cash and cash equivalents and restricted cash and restricted cash equivalents:

Net (decrease) increase during the period ( 139,377 ) 442,150

Beginning balance 207,747 48,736

Ending balance $ 68,370 $ 490,886

Supplemental schedule of non-cash investing and financing activities not disclosed elsewhere:

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

26 unchanged sentences

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.

Unless otherwise noted, 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.

The condensed consolidated financial statements include the accounts of ADT Inc.

22 unchanged sentences

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.

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 and six months ended June 30, 2021.

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.

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 and permanent 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.

To protect its employees and serve its customers, the Company implemented and is continuously evolving certain measures, 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.

The Company considered the on-going and pervasive economic impact of the COVID-19 Pandemic in the 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, 2021.

However, the evolving and uncertain nature of the COVID-19 Pandemic, as well as the evolving nature of the regulatory environment which may require vaccine mandates or other actions that could impact the Company’s employee base or impose additional costs on the business, could materially impact the Company’s estimates and financial results in future reporting periods.

Cash and Cash Equivalents and Restricted Cash and Restricted Cash Equivalents

2 unchanged sentences

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) June 30, 2021 December 31, 2020

The amount of cash and cash equivalents and restricted cash and restricted cash equivalents reported in the Condensed Consolidated Balance Sheets as reconciled to the total of the same of such amounts shown in the Condensed Consolidated Statements of Cash Flows is as follows:

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

Cash and cash equivalents $ 61,207 $ 204,998

Restricted cash and restricted cash equivalents 7,163 2,749

Cash and cash equivalents and restricted cash and restricted cash equivalents at end of period $ 156,505 $ 207,747

Ending balance $ 68,370 $ 207,747

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

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.

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) June 30, 2021 December 31, 2020

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

The Company records subscriber system assets and deferred subscriber acquisition costs in the Condensed Consolidated Balance Sheets as these assets embody a probable future economic benefit for the Company through the generation of future monitoring and related services revenue.

Upon customer termination, the Company may retrieve such assets.

Subscriber system assets, net reflected in the Condensed Consolidated Balance Sheets was as follows:

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

Gross carrying amount $ 5,326,889 $ 4,815,286

1 unchanged sentence

Subscriber system assets, net $ 2,817,855 $ 2,663,228

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.

The Company depreciates and amortizes its pooled subscriber system assets and related deferred subscriber acquisition costs using an accelerated method over the estimated life of the customer relationship, which is 15 years.

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

The Company depreciates and amortizes these pooled costs using an accelerated method over the estimated life of the customer relationship, which is 15 years.

Depreciation and amortization of subscriber system assets and deferred subscriber acquisition costs are reflected in depreciation and intangible asset amortization and selling, general, and administrative expenses, respectively, in the Condensed Consolidated Statements of Operations as follows:

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands) 2021 2020 2021 2020

Depreciation of subscriber system assets $ 129,131 $ 120,328 $ 376,037 $ 379,819

Amortization of deferred subscriber acquisition costs

$ 32,534 $ 24,810 $ 91,364 $ 70,226

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:

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

Accrued expenses and other current liabilities reflected in the Condensed Consolidated Balance Sheets consisted of the following:

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

Accrued interest $ 69,863 $ 123,935

5 unchanged sentences

Radio Conversion Costs

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 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.

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;

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 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 cellular network providers notifying the Company they will be retiring their 3G and CDMA networks during 2022.

Radio conversion costs and radio conversion revenue are reflected in selling, general, and administrative expenses and monitoring and related services revenue, respectively, in the Condensed Consolidated Statements of Operations as follows:

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands) 2021 2020 2021 2020

Radio conversion costs $ 61,648 $ 21,066 $ 202,075 $ 50,424

Radio conversion revenue

9,353 8,425 30,416 26,113

Radio conversion costs, net $ 52,295 $ 12,641 $ 171,659 $ 24,311

The Company estimates it will incur approximately $ 260 million - $ 290 million of net costs related to this program, which include costs incurred associated with radio replacements and cellular network conversions net of any related incremental revenue, some of which may be received after the applicable sunset dates.

From inception of this program through September 30, 2021, the Company incurred $ 249 million of net costs.

As of September 30, 2021, the Company provided services to approximately 480 thousand remaining customer sites transmitting signals via 3G or CDMA networks, which currently have sunset dates in February and December 2022.

The Company expects to incur any remaining costs through 2022, with the majority of costs expected to be incurred during the fourth quarter of 2021, and expects to continue collecting incremental revenue related to the program through 2023.

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 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.

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

The cost and pace of the program is influenced by the ability to access customer sites due to various factors such as the COVID-19 Pandemic;

the ability to convert customers during routine service visits whenever possible;

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

and the extent to which the Company is able to implement its Cell Bounce solution.

Any supply chain disruptions may impact the Company’s ability to convert customers prior to the sunset dates, and the Company may see revenue attrition for any customers not converted by such time.

Fair Value of Financial Instruments

1 unchanged sentence

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 June 30, 2021 and December 31, 2020, respectively.

Cash Equivalents - Included in cash and cash equivalents are investments in money market mutual funds.

The Company had no investments in money market mutual funds as of September 30, 2021 and $ 143 million of such investments as of December 31, 2020.

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 net carrying amount and fair value of retail installment contract receivables:

June 30, 2021 December 31, 2020

(in thousands) Carrying

Value Carrying

Retail installment contract receivables, net $ 228,555 $ 176,234 $ 141,591 $ 112,676

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.

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

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:

June 30, 2021 December 31, 2020

The total carrying amount and fair value of long-term debt instruments subject to fair value disclosures were as follows:

September 30, 2021 December 31, 2020

(in thousands) Carrying

2 unchanged sentences

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

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.

These fair values are primarily calculated using discounted cash flow models utilizing 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 values are classified as Level 2 fair value measurements.

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 total carrying amount and fair value of retail installment contract receivables were as follows:

September 30, 2021 December 31, 2020

(in thousands) Carrying

Value Carrying

Retail installment contract receivables, net $ 280,830 $ 216,633 $ 141,591 $ 112,676

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 June 30, 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 September 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.

4 unchanged sentences

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.

Facilitation of the Effects of Reference Rate Reform on Financial Reporting, amends ASU 2020-04 and clarifies the scope and guidance of Topic 848 to allow 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 June 30, 2021, this guidance had no impact on the Condensed Consolidated Financial Statements.

As of September 30, 2021, this guidance had no impact on the condensed consolidated financial statements.

However, the Company will continue to evaluate this guidance.

Recently Issued Accounting Pronouncements

ASU 2021-08, Business Combinations:

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers , requires entities to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, as if the acquiring entity had originated the related revenue contracts.

This guidance is effective for fiscal years beginning after December 15, 2022, 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 is currently evaluating the impact of the 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 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.

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.

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.

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 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.

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 Company’s performance obligations generally include monitoring, related services (such as maintenance agreements), and the sale and installation of security systems or a material right in transactions in which the Company retains ownership of the security system (as discussed below).

The transaction price is allocated to each performance obligation based on relative standalone selling price, which is determined using observable internal and external pricing, profitability, and operational metrics.

The following table presents the Company’s disaggregated revenue:

Three Months Ended Six Months Ended

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

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands) 2021 2020 2021 2020

Monitoring and related services $ 975,810 $ 940,493 $ 2,892,291 $ 2,814,482

3 unchanged sentences

Installation and other 158,823 133,352 476,887 407,791

163,483 123,779 318,064 274,439

Total Commercial 281,402 238,536 829,271 726,322

Total revenue $ 1,317,002 $ 1,298,924 $ 3,926,123 $ 4,000,063

Revenue is recognized 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.

Termination charges are assessed in accordance with the terms of the contract when customers terminate a contract early.

Company-Owned - In transactions in which the Company provides monitoring and related services but retains ownership of the security system (referred to as Company-owned transactions), the Company’s performance obligations primarily include monitoring and related services, as well as a material right associated with the one-time non-refundable fees in connection with the initiation of a monitoring contract which 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 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.

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

Deferred subscriber acquisition revenue is amortized on a pooled basis over the estimated life of the customer relationship using an accelerated method consistent with the treatment of subscriber system assets and deferred subscriber acquisition costs.

Amortization of deferred subscriber acquisition revenue is reflected in installation and other revenue in the Condensed Consolidated Statements of Operations as follows:

Three Months Ended September 30, Nine Months Ended September 30,

( in thousands )

2021 2020 2021 2020

Amortization of deferred subscriber acquisition revenue $ 45,020 $ 31,329 $ 122,908 $ 90,346

Customer-Owned - 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 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 driving 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.

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

The portion of the transaction price associated with monitoring and related services 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 and cost of revenue from products in outright sales were as follows:

Three Months Ended September 30, Nine Months Ended September 30,

( in thousands )

2021 2020 2021 2020

Revenue from product sales $ 171,030 $ 220,599 $ 551,652 $ 773,377

Cost of revenue from product sales $ 145,397 $ 160,009 $ 452,852 $ 562,691

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

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”), 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 began transitioning its security system ownership model to a predominately Company-owned model in May 2020.

In 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 (as discussed below).

Due to the requirements of the Company’s initial third-party consumer financing program, the Company transitioned its security system ownership model from a predominately Company-owned model to a predominately customer-owned model in February 2020.

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

In April 2020, the Company further amended the Receivables Facility to also permit financing secured by retail installment contract receivables from transactions occurring under a Company-owned model, and as a result, the Company began transitioning to a predominately Company-owned model in May 2020.

Substantially all new residential transactions since March 2021 take place under a Company-owned model.

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.

Accounts receivable 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 Company’s allowance for credit losses is evaluated on a pooled basis based on customer type.

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.

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

Six Months Ended June 30,

Receivables and Contract Assets

The Company’s accounts receivable, retail installment contract receivables, and contract assets are recorded at amortized cost less an allowance for credit losses not expected to be recovered.

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

Accounts Receivable

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

The Company evaluates its allowance for credit losses on accounts receivable in pools based on customer type.

For each customer pool, 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 is not material for the individual pools of customers.

Changes in the allowance for credit losses on accounts receivable were as follows:

Nine Months Ended September 30,

(in thousands) 2021 2020 (1)

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(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.

(1) Beginning balance reflected is subsequent to the adoption of ASU 2016-13, Measurement of Credit Losses on Financial Instruments, and related amendments on January 1, 2020.

The impact of adoption was not material.

(2) Recoveries were 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 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.

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.

In addition, a customer is required to enroll in the Company’s automated payment process in order to enter into a retail installment contract.

The Company’s retail installment contract option allows qualifying residential customers to pay the fees due at installation over a 24-, 36-, or 60-month interest-free period and is available for transactions occurring under both Company-owned and customer-owned models.

The financing component of retail installment contract receivables is not significant.

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

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

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 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) June 30, 2021 December 31, 2020

In addition, customers are required to enroll in the Company’s automated payment process in order to enter into a retail installment contract.

As of September 30, 2021, the current and delinquent billed retail installment contract receivables were not material.

Unbilled retail installment contract receivables reflected in the Condensed Consolidated Balance Sheets were as follows:

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

Retail installment contract receivables, gross $ 282,360 $ 145,957

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Retail installment contract receivables, net $ 280,830 $ 141,591

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.

As of September 30, 2021 and December 31, 2020, retail installment contract receivables, net, used as collateral for borrowings under the Receivables Facility were $ 249 million and $ 109 million, respectively.

The allowance for credit losses relates to retail installment contract receivables from outright sales transactions and is not material.

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.

Contract assets represent the Company’s right to consideration in exchange for goods or services transferred to the customer.

The contract asset is reclassified to accounts receivable when the Company has an unconditional right to the consideration as additional services are performed and billed.

The Company has the right to bill customers as services are 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.

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 primarily to residential transactions recognized in the Condensed Consolidated Balance Sheets:

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

Contract assets for residential transactions reflected in the Condensed Consolidated Balance Sheets were as follows:

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

Contract assets, gross $ 125,388 $ 161,563

5 unchanged sentences

Contract assets, net $ 108,469 $ 132,005

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

During the nine months ended September 30, 2021 and 2020, the Company recognized approximately $ 24 million and $ 158 million of contract assets, respectively.

The allowance for credit losses on contract assets is not material.

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.

The Company is a lessor in certain Company-owned transactions 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 the monitoring and related services.

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 accounts for the lease and non-lease components separately.

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

For transactions that do not qualify for the practical expedient as the lease component represents a sales-type lease, the Company accounts for the lease and non-lease components separately.

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

Company as Lessee

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.

Additionally, the Company’s right-of-use assets and lease liabilities include leases with an initial lease term of 12 months or less.

The Company’s right-of-use assets and lease liabilities primarily represent (a) lease payments that are fixed at the commencement of a lease and (b) variable lease payments that depend on an index or rate.

Lease payments are recognized as lease cost on a straight-line basis over the lease term, which is determined as the non-cancelable period, periods in which termination options are reasonably certain of not being exercised, and periods in which renewal options are reasonably certain of being exercised.

The discount rate for a lease is determined using the Company’s incremental borrowing rate that coincides with the lease term at the commencement of a lease.

As part of normal operations, the Company leases real estate, vehicles, and equipment from various counterparties with lease terms and maturities through 2030.

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

Additionally, the Company’s right-of-use assets and lease liabilities include leases with initial lease terms of 12 months or less.

The Company’s right-of-use assets and lease liabilities primarily represent lease payments fixed at the commencement of a lease and variable lease payments dependent on an index or rate.

Lease payments are recognized as lease cost on a straight-line basis over the lease term, which is determined as the non-cancelable period, including periods in which termination options are reasonably certain of not being exercised and periods in which renewal options are reasonably certain of being exercised.

The discount rate is determined using the Company’s incremental borrowing rate coinciding with the lease term at the commencement of a lease.

The incremental borrowing rate is estimated based on publicly available data for the Company’s debt instruments and other instruments with similar characteristics.

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 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.

Lease payments that are neither fixed nor 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 are recorded in the period in which the obligation is incurred and primarily relate to fuel, repair, and maintenance payments as they 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 operating and finance leases recognized in the Condensed Consolidated Balance Sheets:

Leases ( in thousands )

Presentation Classification June 30, 2021 December 31, 2020

Leases recognized in the Condensed Consolidated Balance Sheets were as follows (in thousands):

Presentation Classification September 30, 2021 December 31, 2020

Operating Current Prepaid expenses and other current assets $ 305 $ 684

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(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 Six Months Ended

Lease Cost ( in thousands )

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

(1) Finance right-of-use assets are recorded net of accumulated depreciation of approximately $ 82 million and $ 67 million as of September 30, 2021 and December 31, 2020, respectively.

The components of total lease cost reflected in the Condensed Consolidated Statements of Operations were as follows:

Three Months Ended September 30, Nine Months Ended September 30,

( in thousands )

2021 2020 2021 2020

Operating lease cost $ 11,418 $ 14,339 $ 36,470 $ 43,251

5 unchanged sentences

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

Six Months Ended

Other information ( in thousands )

June 30, 2021 June 30, 2020

Nine Months Ended September 30,

( in thousands )

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

Operating cash flows from operating leases $ 24,072 $ 28,639

Operating cash flows from finance leases $ 1,376 $ 1,615

Financing cash flows from finance leases $ 14,392 $ 14,430

Operating cash flows - operating leases $ 34,622 $ 42,901

Operating cash flows - finance leases $ 2,083 $ 2,393

Financing cash flows - finance leases $ 22,566 $ 21,253

Right-of-use assets obtained in exchange for new:

1 unchanged sentence

Finance lease liabilities $ 36,465 $ 10,147

During the six months ended June 30, 2021, total consideration related to business acquisitions was approximately $ 16 million.

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

During the nine months ended September 30, 2020, other acquisitions were not material.

Subsequent Event - Sunpro Solar Acquisition

In November 2021, the Company entered into a Purchase Agreement to acquire Compass Solar Group, LLC (“Sunpro Solar”) (the “Sunpro Solar Acquisition”), a leading provider of residential solar installation.

Pursuant to the Purchase Agreement, the base purchase price consists of $ 160 million in cash and approximately 77.8 million shares of the Company’s common stock, subject to adjustment as set forth in the Purchase Agreement.

Upon the consummation of this transaction, Sunpro Solar will become an indirect wholly-owned subsidiary of the Company.

The consummation of this transaction is subject to customary closing conditions and regulatory approvals and is expected to occur in the fourth quarter of 2021.

Additionally, Sunpro Solar is expected to operate as a standalone business, and the Company will evaluate any impact on its reporting unit and segment structure.

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 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).

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.

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

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 comprised of the CSB reporting unit, and Commercial, which is 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 six months ended June 30, 2021:

(in thousands) CSB Commercial Total Goodwill

Changes in the carrying amount of goodwill by reportable segment were as follows:

Nine Months Ended September 30, 2021

(in thousands) CSB Commercial Total

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

5 unchanged sentences

N/A—Not applicable.

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.

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

There were no material measurement period adjustments to purchase price allocations during the nine months ended September 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:

June 30, 2021 December 31, 2020

Other intangible assets reflected in the Condensed Consolidated Balance Sheets consisted of the following:

September 30, 2021 December 31, 2020

(in thousands) Gross Carrying

12 unchanged sentences

Intangible assets $ 11,627,730 $ ( 6,106,983 ) $ 5,520,747 $ 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 six months ended June 30, 2021:

(in thousands)

Changes in the net carrying amount of contracts and related customer relationships were as follows:

(in thousands) Nine Months Ended September 30, 2021

Beginning balance $ 3,374,156

3 unchanged sentences

Ending balance $ 3,080,948

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.

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 Six Months Ended

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

________________

(1) The weighted-average amortization period for customer contract additions was 14 years.

During the nine months ended September 30, 2021, the Company paid $ 512 million related to customer contract additions under the ADT Authorized Dealer Program and from other third parties, which is included in dealer generated customer accounts and bulk account purchases on the Condensed Consolidated Statements of Cash Flows.

In addition, 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.

Definite-lived intangible asset amortization expense reflected in the Condensed Consolidated Statements of Operations was as follows:

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands) 2021 2020 2021 2020

Definite-lived intangible asset amortization expense $ 301,828 $ 305,824 $ 901,363 $ 918,187

Intangible Asset Impairments

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.

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 the 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 was comprised of the following as of June 30, 2021:

(in thousands, except as otherwise indicated)

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

As of September 30, 2021 and December 31, 2020, the Company’s debt was comprised of the following (in thousands, except as otherwise indicated):

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

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

4 unchanged sentences

First Lien Notes due 2027 8/20/2020 8/31/2027 3.375 % 6/15 and 12/15 1,000,000 1,000,000

First Lien Notes due 2029 7/29/2021 8/1/2029 4.125 % 2/1 and 8/1 1,000,000 —

ADT Notes due 2022 7/5/2012 7/15/2022 3.500 % 1/15 and 7/15 — 1,000,000

3 unchanged sentences

Receivables Facility 3/5/2020 8/20/2026 LIBOR +0.85% Monthly 165,482 75,775

Finance lease obligations N/A N/A N/A N/A 63,783 61,328

Finance lease obligations (1)

74,486 61,328

Unamortized debt discount, net ( 17,499 ) ( 19,993 )

5 unchanged sentences

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N/A—Not applicable.

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

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

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

First Lien Credit Agreement

1 unchanged sentence

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 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

The Company is required to make quarterly payments equal to 0.25 % of the aggregate outstanding principal amount of the First Lien Term Loan due 2026.

The Company may make voluntary prepayments 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.

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.

After giving effect to this amendment and restatement, aggregate commitments under the First Lien Revolving Credit Facility were $ 575 million.

As of September 30, 2021, the Company had an available borrowing capacity of $ 575 million under its First Lien Revolving Credit Facility and no borrowings outstanding.

First Lien Notes due 2029

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 related deferred financing costs were not material.

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, and may be redeemed at the Company’s option as follows:

• Prior to August 1, 2028, in whole at any time or in part from time to time, at a redemption price equal to the greater of (i) 100 % of the principal amount of the First Lien Notes due 2029 to be redeemed and (ii) the sum of the present values of the aggregate principal amount of the First Lien Notes due 2029 to be redeemed and the remaining scheduled interest payments due on any date after the redemption date, to and including August 1, 2028, discounted at an adjusted treasury rate plus 50 basis points, plus, in either case accrued and unpaid interest as of, but excluding, the redemption date.

• On or after August 1, 2028, 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 2029 to be redeemed and accrued and unpaid interest as of, but excluding, the redemption date.

The Company’s obligations relating to the First Lien Notes due 2029 are guaranteed, jointly and severally, on a senior secured first-priority basis, by substantially all of the Company’s subsidiaries and are secured by first-priority security interests in substantially all of the assets of the Company’s domestic subsidiaries, subject to certain permitted liens and exceptions.

In addition, upon the occurrence of specified change of control events, the Company may be required to purchase the First Lien Notes due 2029 at 101 % of the principal amount, plus accrued and unpaid interest, if any, to, but not including, the purchase date.

The indenture also provides for customary events of default.

ADT Notes due 2022 Redemption

In August 2021, the Company used the proceeds from the First Lien Notes due 2029, along with cash on hand, to (i) 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”) for approximately $ 1.0 billion, including the related call premium of $ 28 million, plus accrued and unpaid interest, and (ii) pay related fees and expenses (the “ADT Notes due 2022 Redemption”).

Loss on Extinguishment of Debt

During the nine months ended September 30, 2021, loss on extinguishment of debt totaled $ 37 million and was primarily due to the call premium and write-off of unamortized fair value adjustments in connection with the ADT Notes due 2022 Redemption.

During the nine months ended September 30, 2020, loss on extinguishment of debt totaled $ 115 million and included (i) $ 66 million 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 and (ii) $ 49 million related to the call premium and write-off of unamortized fair value adjustments in connection with the $ 1.0 billion redemption of the Company’s 6.25% notes due 2021 in September 2020.

Receivables Facility

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 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).

Accordingly, the assets of the SPE are not available to pay creditors of the Company (other than the SPE), although collections from the transferred retail installment contract receivables in excess of amounts required to repay the SPE’s creditors may be remitted to the Company during and after the term of the Receivables Facility.

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 a segregated bank account in the name of the SPE.

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”).

The SPE grants a security interest in those retail installment contract receivables as collateral for cash borrowings under the Receivables Facility.

As of September 30, 2021, the Receivables Facility permitted up to $ 200 million of uncommitted financing secured by the Company’s retail installment contract receivables owned by the SPE.

In March 2021, the Receivables Facility was amended to, among other things, extend the scheduled termination date for the uncommitted revolving period to March 4, 2022, and reduce the spread over LIBOR payable in respect of borrowings thereunder from 1.00 % to 0.85 %.

In July 2021, the Receivables Facility was further amended into the form of a Receivables Financing Agreement, which continued the uncommitted secured lending arrangement contemplated among the parties and, among other things, provided for certain revisions to funding, prepayment, reporting, and other provisions in preparation for a potential future syndication of the advances made under the Receivables Facility.

The SPE borrower under the Receivables Facility 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 of the SPE becoming available to the Company (other than the SPE).

Accordingly, the assets of the SPE are not available to pay creditors of the Company (other than the SPE), although collections from the transferred retail installment contract receivables in excess of amounts required to repay amounts then due and payable to the SPE’s creditors may be released to the Company and subsequently used by the Company (including to pay other creditors).

The SPE’s creditors under the Receivables Facility have legal recourse to the transferred retail installment contract receivables owned by the SPE, and to the Company for certain performance and operational obligations relating to the Receivables Facility, but do not have any recourse to the Company (other than the SPE) for the payment of principal and interest on the advances under the Receivables Facility.

The Company services the transferred retail installment contract receivables and is responsible for ensuring the related collections are remitted to a segregated bank account in the name of the SPE.

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

The segregated account is considered restricted cash and is reflected in prepaid expenses and other current assets in the Company’s Condensed Consolidated Balance Sheets.

Borrowings under the Receivables Facility along with the transferred retail installment contract receivables are included in the Condensed Consolidated Balance Sheets.

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 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.

As of September 30, 2021 and December 31, 2020, the Company had outstanding borrowings under the Receivables Facility of $ 165 million and $ 76 million, respectively, and an uncommitted available borrowing capacity of $ 35 million as of September 30, 2021.

During the nine months ended September 30, 2021, the Company received proceeds of $ 118 million under the Receivables Facility and repaid $ 28 million, which are reflected as cash flows from financing activities in the Condensed Consolidated Statements of Cash Flows.

The Receivables Facility did not have a material impact to the Condensed Consolidated Statements of Operations during the three or nine months ended September 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.

Amendment to the Receivables Facility

In October 2021, the Company further amended the documentation governing the Receivables Facility in connection with the syndication of the advances thereunder to two additional lenders:

MUFG Bank, Ltd., and Starbird Funding Corporation, a conduit lender related to BNP Paribas.

As part of the amendment, the Receivables Facility’s uncommitted lending limit was increased from $ 200 million to $ 400 million, and the scheduled termination date for the Receivable Facility’s uncommitted revolving period was extended to October 2022.

Variable Interest Entity

The SPE, as described above, meets the definition of a variable interest entity (“VIE”) for which the Company is the primary beneficiary as it has the power to direct the SPE’s activities and the obligation to absorb losses or the right to receive benefits of the SPE.

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 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 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.

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

As of September 30, 2021 and December 31, 2020, the SPE’s assets and liabilities primarily consisted of unbilled retail installment contract receivables, net, of $ 249 million and $ 109 million, respectively, and borrowings under the Receivables Facility as described above.

Derivative Financial Instruments

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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 designated as cash flow hedges, unrealized gains and losses are recognized as a component of accumulated other comprehensive income (loss) (“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 June 30, 2021 and December 31, 2020 ( in thousands ):

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

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

Execution Maturity Designation Notional Amount

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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 $ 3.0 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.

Accordingly, the Company de-designated the cash flow hedges, and the unrealized gains and losses for the periods 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 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) June 30, 2021 December 31, 2020

The unrealized impact of interest rate swaps recognized in interest expense, net, in the Condensed Consolidated Statements of Operations was as follows:

Three Months Ended September 30, Nine Months Ended September 30,

( in thousands )

2021 2020 2021 2020

Unrealized gain (loss) on interest rate swaps $ 23,033 $ 8,311 $ 115,090 $ ( 89,589 )

During the nine months ended September 30, 2021 and 2020, the Company paid $ 42 million and $ 25 million, respectively, related to settlements on interest rate swap contracts that included an other-than-insignificant financing element at inception.

The classification and fair value of interest rate swaps recognized in the Condensed Consolidated Balance Sheets were as follows:

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

Accrued expenses and other current liabilities $ 61,151 $ 65,462

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Fair value of interest rate swaps $ 160,751 $ 275,840

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.

As of September 30, 2021 and December 31, 2020, AOCI, net of tax, related to cash flow hedges was $ 83 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 per share.

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

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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 six months ended June 30, 2021 and 2020:

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

Dividends declared on common stock during the periods presented were as follows (in thousands, except per share data):

Common Stock Class B Common Stock

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

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

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

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

8/4/2021 9/16/2021 10/5/2021 0.035 27,270 0.035 1,916

Total $ 0.105 $ 81,758 $ 0.105 $ 5,748

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

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

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

8/5/2020 9/18/2020 10/2/2020 0.035 27,047 0.035 1,916

Total $ 0.105 $ 80,931 $ 0.035 $ 1,916

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.

Subsequent Event - On November 9, 2021, the Company announced a dividend of $ 0.035 per share to holders of Common Stock and Class B Common Stock of record on December 16, 2021, which will be distributed on January 4, 2022.

Other Share Activity

In 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.

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).

Prior to termination, dividends settled in shares of Common Stock were not material during the periods presented.

In 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).

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

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.

Prior to termination, repurchases of shares of Common Stock under the Share Repurchase Program were not material during the periods presented.

Accumulated Other Comprehensive Income (Loss)

Amounts reclassified out of AOCI associated with cash flow hedges were as follows:

Three Months Ended September 30, Nine Months Ended September 30,

( in thousands )

2021 2020 2021 2020

Reclassifications to interest expense, net $ 15,581 $ 15,334 $ 46,024 $ 31,001

Reclassifications to income tax benefit $ ( 3,791 ) $ ( 3,727 ) $ ( 11,197 ) $ ( 7,535 )

As of September 30, 2021, approximately $ 44 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 $ 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.

Share-based compensation expense recognized in the Condensed Consolidated Statements of Operations was as follows:

Three Months Ended September 30, Nine Months Ended September 30,

( in thousands )

2021 2020 2021 2020

Share-based compensation expense $ 16,242 $ 26,431 $ 45,848 $ 74,758

Restricted Stock Units

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”).

During the nine months ended September 30, 2021, the Company granted approximately 6.3 million restricted stock units (“RSUs”) under its 2018 Omnibus Incentive Plan, as amended (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 $ 8.07 .

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, (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 (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 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 ) $ —

Weighted-average shares outstanding - basic and diluted 765,922 54,745 760,597 — 764,322 54,745 759,845 —

Net loss per share - basic and diluted $ ( 0.15 ) $ ( 0.15 ) $ ( 0.14 ) $ — $ ( 0.21 ) $ ( 0.21 ) $ ( 0.54 ) $ —

The RSUs’ retirement provisions 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 grant date.

RSUs are entitled to dividend equivalent units (unless otherwise stipulated in the applicable award agreement), which are granted as additional RSUs and are subject to the same vesting and forfeiture conditions as the underlying RSUs.

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, which 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 by the related weighted-average number of shares outstanding during the period.

Diluted net (loss) income 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.

For purposes of the diluted net (loss) income 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) income per share of Common Stock is equal to diluted net (loss) income per share of Common Stock for the periods presented.

During the three and nine months ended September 30, 2020, potential shares of Class B Common Stock included (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.

The computations of basic and diluted net (loss) income per share for each class of common stock were as follows (in thousands, except per share amounts):

Three Months Ended September 30,

Common Stock Class B Common Stock Common Stock Class B Common Stock

Allocation of net (loss) income - basic $ ( 101,850 ) $ ( 7,279 ) $ ( 113,479 ) $ 381

Dilutive effect of potential shares of Class B Common Stock — — — ( 1,498 )

Allocation of net (loss) income - diluted $ ( 101,850 ) $ ( 7,279 ) $ ( 113,479 ) $ ( 1,117 )

Weighted-average shares outstanding - basic 766,814 54,745 760,913 8,331

Dilutive potential shares of Class B Common Stock — — — 8,309

Weighted-average shares outstanding - diluted 766,814 54,745 760,913 16,640

Net (loss) income per share - basic $ ( 0.13 ) $ ( 0.13 ) $ ( 0.15 ) $ 0.05

Net (loss) income per share - diluted $ ( 0.13 ) $ ( 0.13 ) $ ( 0.15 ) $ ( 0.07 )

Nine Months Ended September 30,

Common Stock Class B Common Stock Common Stock Class B Common Stock

Allocation of net (loss) income - basic $ ( 263,957 ) $ ( 18,916 ) $ ( 519,841 ) $ ( 291 )

Dilutive effect of potential shares of Class B Common Stock — — — ( 2,185 )

Allocation of net (loss) income - diluted $ ( 263,957 ) $ ( 18,916 ) $ ( 519,841 ) $ ( 2,476 )

Weighted-average shares outstanding - basic 765,162 54,745 760,203 2,797

Dilutive potential shares of Class B Common Stock — — — 2,790

Weighted-average shares outstanding - diluted 765,162 54,745 760,203 5,587

Net (loss) income per share - basic $ ( 0.35 ) $ ( 0.35 ) $ ( 0.68 ) $ ( 0.10 )

Net (loss) income per share - diluted $ ( 0.35 ) $ ( 0.35 ) $ ( 0.68 ) $ ( 0.44 )

Unrecognized Tax Benefits

During the six months ended June 30, 2021, the Company did not have a material change to its unrecognized tax benefits.

During the nine months ended September 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.

federal, state and local, and foreign jurisdictions.

Based on the current status of its income tax audits, the Company does not believe that a significant portion of its unrecognized tax benefits will be resolved in the next twelve months.

Based on the current status of its income tax audits, the Company does not believe a significant portion of its unrecognized tax benefits will be resolved in the next twelve months.

Effective Tax Rate

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 Company’s income tax benefit for the three months ended September 30, 2021 was $ 36 million, resulting in an effective tax rate for the period of 25.1 %.

The effective tax rate primarily represents the federal statutory rate of 21.0 % and a state statutory tax rate, net of federal benefits, of 3.1 %.

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.

The Company’s income tax benefit for the nine months ended September 30, 2021 was $ 92 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 2.9 %, and a 0.6 % 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.

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 tax 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.

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 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.

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 in 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.

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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.

During 2021, various revenue raising corporate tax provisions have been proposed, including a potential increase in the corporate tax rate, the enactment of a minimum tax on book income, the imposition of additional limitations on the deduction for executive compensation, as well as a potential limitation on the carryforward period of disallowed interest expense.

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

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Contractual Obligations

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.

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 course of the agreement.

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

During the nine months ended September 30, 2021, there have been no material changes to the Company’s contractual obligations as compared to December 31, 2020, except as discussed below:

The Company entered into an agreement in February 2021 with a third party to purchase customer accounts, if certain conditions are met, for up to approximately $ 67 million over the course of the agreement, of which approximately half have not been purchased as of September 30, 2021.

Legal Proceedings

11 unchanged sentences

Legal costs in connection with claims and lawsuits in the ordinary course of business are expensed as incurred.

Additionally, the Company records insurance recovery receivables from third-party insurers when recovery has been determined to be probable.

Additionally, the Company records insurance recovery

receivables from third-party insurers when recovery has been determined to be probable.

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 $ 93 million and $ 89 million as of June 30, 2021 and December 31, 2020, respectively.

The Company’s accrual for ongoing claims and lawsuits within scope of an insurance program totaled $ 94 million and $ 89 million as of September 30, 2021 and December 31, 2020, respectively.

Environmental Matters

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

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

The case settled in January 2020.

The settlement received preliminary approval from the court in February 2021 and final approval in August 2021.

Wage and Hour Class Action

9 unchanged sentences

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

One of the individual claims was subsequently settled.

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

5 unchanged sentences

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

In October 2021, plaintiff filed a motion to stay resolution of class certification, with the intent to proceed with the claim on an individual basis and not as a class action.

In November 2021, the court granted the motion in part, giving plaintiff until January 2022 to dismiss the class allegations of her amended complaint and withdraw her Motion to Certify Class.

The case will proceed thereafter as an individual action..

The matter otherwise remains pending and is in discovery.

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

5 unchanged sentences

The case is stayed and administratively closed pending arbitration.

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

In April 2021, the Company accepted service of a new class action complaint filed in the U.S.

2 unchanged sentences

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

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.

In July 2021, the federal district court dismissed the claim for intrusion upon seclusion and ruled that the plaintiff cannot proceed on theories of vicarious liability for the technician’s intentional torts.

As with the Shana Doty matter, plaintiff moved to stay resolution of class certification in October 2021.

By order entered in November 2021, plaintiff was given until January 2022 to dismiss the class allegations of his complaint and withdraw his Motion to Certify Class, after which the case will proceed as an individual action.

The matter remains pending and is in discovery.

The Company may also be subject to future legal claims.

Segment Information

4 unchanged sentences

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.

Adjusted EBITDA is defined as net income or loss adjusted for (i) interest;

(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;

and (ix) other income/gain or expense/loss items such as impairment charges, financing and consent fees, or acquisition-related adjustments.

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

1 unchanged sentence

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

Three Months Ended Six Months Ended

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

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands) 2021 2020 2021 2020

CSB $ 1,035,600 $ 1,060,388 $ 3,096,852 $ 3,273,741

2 unchanged sentences

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

Three Months Ended Six Months Ended

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

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands) 2021 2020 2021 2020

Adjusted EBITDA by segment:

13 unchanged sentences

52,295 12,641 171,659 24,311

Financing and consent fees (2)

399 10 3,745 5,260

( 944 ) ( 2,608 ) ( 4,129 ) ( 2,428 )

Other 365 ( 851 ) ( 19 ) 1,981

Net loss before taxes $ ( 145,625 ) $ ( 140,797 ) $ ( 374,953 ) $ ( 653,626 )

___________________

(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 other charges and non-cash items.

(1) Refer to Note 1 “Description of Business and Summary of Significant Accounting Policies” for further details.

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 six months ended June 30, 2021 and 2020.

There were no significant related party transactions for the three or nine months ended September 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