What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-11-09 compared with 2021-08-04 · 218 added, 200 removed, 266 unchanged (61% of the section changed)

8 unchanged sentences

We are one of the largest full-service security and home automation companies with a national footprint, and we deliver an integrated customer experience by maintaining the industry’s largest sales, installation, and service field force, as well as a 24/7 professional monitoring network.

As of June 30, 2021, we served approximately 6.6 million recurring customers, excluding contracts monitored but not owned.

Our security and automation offerings involve the sale, installation, and monitoring of security and premises automation systems designed to detect intrusion;

As of September 30, 2021, we served approximately 6.6 million recurring customers, excluding contracts monitored but not owned.

Our security and automation offerings are designed to detect intrusion;

control access;

2 unchanged sentences

Upon the occurrence of certain initiating events, monitored security systems send event-specific signals to our monitoring centers.

According to the type of service contract and customer preference, our monitoring center personnel respond to alarms by relaying appropriate information to first responders, such as local police, fire departments, or medical emergency response centers;

According to the customer’s service contract and preferences, our monitoring center personnel respond to alarms by relaying appropriate information to first responders, such as local police, fire departments, or medical emergency response centers;

the customer;

or others on the customer’s emergency contact list.

We continue to invest and innovate in our alarm verification technologies as well as partner with industry associations and various first responder agencies to help prioritize response events and enhance response policies.

The breadth of our solutions allows us to meet a wide variety of customer needs.

The vast majority of our new customers enroll in our interactive and smart home solutions, which allow our customers to remotely monitor and manage their environments.

Depending on the service plan and type of product installation, customers are able to remotely access information regarding the security of their residential or commercial environment, arm and disarm their security systems, adjust lighting or thermostat levels, monitor and react to defined events, or view real-time video from cameras covering different areas of their premises through a customized web portal from web-enabled devices (such as smart phones, laptops, and tablet computers).

Additionally, our interactive and smart home solutions enable customers to create customized and automated schedules for managing connected devices such as lights, thermostats, appliances, garage doors, and cameras.

These systems can also be programmed to perform additional functions such as recording and viewing live video and sending text messages or other alerts based on triggering events or conditions.

As part of our product innovation, we are extending the concept of security from the physical home or business to personal on-the-go security and safety with SoSecure, our mobile safety application, and other offerings.

Our technology allows us to integrate with various third-party connected and wearable devices enabling us to serve our customers whether they are at home or on-the-go.

Customers’ increasingly mobile and active lifestyles have also created new opportunities for us in the fast-growing market for self-monitored DIY products and mobile technology.

Additionally, we offer personal emergency response system products and services that are supported by our monitoring centers and utilize our security monitoring infrastructure to provide customers with solutions helping to sustain independent living and encourage better self-care activities.

We continue to innovate and invest in our alarm verification technologies, as well as partner with industry associations and various first responder agencies to help prioritize response events and enhance response policies.

The vast majority of new customers enroll in interactive and smart home solutions, which allow customers to remotely monitor and manage their environments, arm and disarm their security systems, adjust lighting or thermostat levels, monitor and react to defined events, or view real-time video, all through a customized web portal from web-enabled devices (such as smart phones).

Customers can also create and automate custom schedules for managing connected devices such as lights, thermostats, appliances, garage doors, and cameras, as well as program their systems to perform additional functions including recording and viewing live video and sending text messages or other alerts based on certain triggering events or conditions.

We are also extending the concept of security from the physical home or business to personal, on-the-go security and safety solutions by integrating our technology with various third-party connected and wearable devices.

Additionally, we utilize our security monitoring infrastructure to help customers sustain independent living and encourage better self-care activities with our personal emergency response system products and services.

In November 2020, we announced the ongoing development of our ADT-owned next generation professional security and automation technology platform, which is currently being developed in coordination with Google LLC (“Google”).

We expect this platform will offer a seamless experience across security, life safety, automation, and analytics through a common application.

Additionally, we expect the platform will integrate the user experience, customer service experience, and back-end support.

BASIS OF PRESENTATION

21 unchanged sentences

Our subscriber-based offerings require significant upfront investment to generate new customers, which in turn provide predictable recurring revenue generated from our monitoring and other services.

In order to optimize returns on customer acquisitions and cash flow generation, we focus on the following key drivers of our business:

In order to optimize returns on customer acquisitions and cash flow generation, we focus on the following key drivers:

disciplined, high-quality customer additions;

5 unchanged sentences

The overall economic condition in the geographies in which we operate can impact our ability to attract new customers and grow our business in all customer channels.

Growth in our residential customer base can be influenced by the overall state of the housing market.

Growth in our commercial customer base can be influenced by the rate at which new businesses are formed or existing businesses grow.

Growth in our residential customer base can be influenced by the overall state of the housing market, while growth in our commercial customer base can be influenced by the rate at which new businesses are formed or existing businesses grow.

The demand for our products and services is also impacted by the perceived threat of crime, as well as the price and quality of our offerings compared to our competitors.

Monthly fees generated from any individual customer vary based on the level of service provided and customer tenure.

We offer a wide range of services at various price points from basic burglar alarm monitoring to our full suite of interactive services, as well as our fire detection and suppression systems and other Commercial offerings.

Our ability to increase monthly fees at the individual customer level depends on a number of factors, including our ability to effectively introduce and market additional features and services that increase the value of our offerings, which we believe drives customers to purchase higher levels of service and supports our ability to make periodic adjustments to pricing.

In addition, we may experience an increase in costs associated with offering a wider variety of products and services, as well as an increase in costs associated with providing more interactive services.

A portion of our customer base can be expected to cancel its service every year.

1 unchanged sentence

Attrition has a direct impact on our financial results, including revenue, operating income, and cash flows.

Monthly fees generated from any individual customer vary based on the level of service provided and customer tenure.

Our ability to increase monthly fees at the individual customer level depends on a number of factors, including our ability to effectively introduce and market additional features and services.

We believe this increases the value of our offerings and drives customers to purchase higher levels of service, as well as supports our ability to make periodic adjustments to pricing.

We are subject to risk associated with certain supply chain disruptions.

While we have only experienced minimal impact in our Commercial operations and in the development of new products due to supply chain disruptions, we continue to monitor and

react to events impacting the global supply chain as we could experience a material impact to our sales and revenue, operating results, cash flows, and ability to commercialize new products in the future.

COVID-19 Pandemic

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 our employees and serve our customers, we have adjusted and are continuously evolving certain aspects of our 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 our call center professionals.

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 our employees and serve our customers, we have implemented and are 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 our call center professionals.

While the COVID-19 Pandemic has impacted our commercial businesses to a greater extent than our residential businesses, we believe our overall recurring revenue and highly variable subscriber acquisition cost model provides a solid financial foundation for strong cash flow generation.

Accordingly, during the challenging macroeconomic environment brought on by the COVID-19 Pandemic, we anticipate maintaining sufficient liquidity and capital resources to continue (i) providing essential services, (ii) satisfying our debt requirements, and (iii) having the ability to return capital to our stockholders in the form of a regular quarterly dividend.

We anticipate maintaining sufficient liquidity and capital resources to continue (i) providing essential services, (ii) satisfying our debt requirements, and (iii) having the ability to return capital to our stockholders in the form of a regular quarterly dividend during this challenging macroeconomic environment.

We have not sought or requested government assistance as a result of the COVID-19 Pandemic, but we did experience a favorable cash flow impact and other benefits associated with certain income tax and payroll tax provisions of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).

While we have incurred additional costs associated with providing personal protective equipment for our employees and implementing certain work from home actions, we also instituted various cost control measures.

Furthermore, we believe uncertainties around the economic environment and COVID-19 Pandemic increase consumer and business awareness of the need for security.

In 2020, we experienced a lower volume of customer relocations and used temporary pricing and retention initiatives for existing customers, which we believe helped counterbalance any increase in gross customer revenue attrition as a result of changes in consumer or business spending caused by the COVID-19 Pandemic.

As the economic environment continues to evolve in response to the COVID-19 Pandemic, we may continue to experience an increase in the number of relocations or other factors, which could impact our results including gross customer revenue attrition.

In addition, we believe the COVID-19 Pandemic affected the seasonal trends we have historically experienced with respect to residential customers.

Prior to 2020, new customer additions and our disconnect rates have typically been higher during the second and third calendar quarters of each year relative to the first and fourth quarters.

Several factors, including the timing of household moves, caused deviations in these trends during 2020.

We are currently unable to determine the ongoing impact the COVID-19 Pandemic will have on our seasonality, and we may experience fluctuations in certain trends in the future.

We considered the on-going and pervasive economic impact of the COVID-19 Pandemic in our assessment of our 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 its effects could materially impact our estimates and financial results in future reporting periods.

In addition, we believe uncertainties around the economic environment and COVID-19 Pandemic have increased consumer and business awareness of the need for security.

Prior to 2020, new customer additions and our disconnect rates on residential customers have typically been higher during the second and third calendar quarters of each year relative to the first and fourth quarters due to several factors, such as the timing of household moves.

We believe the COVID-19 Pandemic affected these seasonal trends beginning in 2020.

We also believe the lower volume of customer relocations we experienced during 2020 and our use of temporary pricing and retention initiatives for existing customers helped counterbalance any increase in gross customer revenue attrition as a result of changes in consumer or business spending caused by the COVID-19 Pandemic.

We are currently unable to determine whether there will be any ongoing impact on our seasonality, and we may continue to experience fluctuations in certain trends, such as relocations, in the future.

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 our employee base or impose additional costs on our business, could materially impact our estimates and financial results in future reporting periods.

Radio Conversion Costs

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

We estimate that we will incur between $250 million to $300 million of net costs over the course of the program, which consists of costs, net of any revenue we collect from customers, associated with these radio replacements and cellular network conversions.

From inception of this program through June 30, 2021, we have incurred $196 million of net costs, of which $119 million was incurred during the six months ended June 30, 2021.

We seek to minimize these costs by converting customers during routine service visits whenever possible.

However, the replacement program and pace of replacement are subject to change and may be influenced by our ability to access customer sites due to the COVID-19 Pandemic;

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

and the extent to which we are able to implement our Cell Bounce solution, as described below.

As of June 30, 2021, we 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, we estimate that we will incur most of the remaining costs during 2021, and we expect to continue to collect a portion of the incremental revenue thereafter.

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

We estimate that we will incur approximately $260 million - $290 million of net costs related to this program.

From inception of this program through September 30, 2021, we incurred $249 million of net costs, of which $172 million was incurred during 2021.

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

Given these current network retirement dates, we expect to incur any remaining costs through 2022, with the majority of costs expected to be incurred during the fourth quarter of 2021.

We also expect to continue to collect incremental revenue related to the program through 2023, some of which may be received after the applicable sunset dates.

During November 2020, we 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, we expect to

continue to replace 3G radios primarily using traditional methods, and we will use Cell Bounce product to complement these traditional methods to the extent possible.

As a result of worldwide shortages for certain electronic components impacting Cell Bounce device production, we expect 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 our ability to access customer sites due to various factors such as the COVID-19 Pandemic;

our ability to convert customers during routine service

visits whenever possible;

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

and the extent to which we are able to implement our Cell Bounce solution.

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

Google Commercial Agreement

In 2020, we entered into a Master Supply, Distribution, and Marketing Agreement (the “Google Commercial Agreement”) with Google LLC (“Google”), pursuant to which Google has agreed to supply us with certain Google devices, as well as certain Google video and analytics services (“Google Services”), for sale to our customers.

The Google Commercial Agreement also sets forth certain termination rights of the parties, certain exclusivity obligations of the Company in favor of Google, and certain other rights and obligations of the parties, all as described in our public filings with the SEC.

The Google Commercial Agreement further specifies that each party will contribute $150 million towards the joint marketing of devices and services;

Google has agreed to supply us with certain Google devices, as well as certain Google video and analytics services, for sale to our customers pursuant to a Master Supply, Distribution, and Marketing Agreement (the “Google Commercial Agreement”), which also sets forth certain termination rights of the parties, certain exclusivity obligations of the Company in favor of Google, and certain other rights and obligations of the parties, all as described in our public filings with the SEC.

The Google Commercial Agreement further specifies each party shall contribute $150 million towards the joint marketing of devices and services;

customer acquisition;

2 unchanged sentences

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

Next Generation Platform

Our comprehensive interactive platform is expected to provide customers with a seamless experience across security, life safety, automation, and analytics through a common application.

Additionally, our platform is expected to integrate the user experience, customer service experience, and back-end support.

We expect to incur costs of approximately $50 million associated with the development of our next generation platform in 2021.

These initiatives are in the early stages, and it is possible that we could experience a material increase in the related costs.

SIGNIFICANT EVENTS

1 unchanged sentence

Revenue Model Initiative and Equipment Ownership Model Change

During February 2020, we 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 pay the fees due at installation over a 24-, 36-, or 60-month interest-free period.

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

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

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

In February 2020, we 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 allowing qualifying residential customers to pay the fees due at installation over a 24-, 36-, or 60-month interest-free period.

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

In April 2020, we 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, we began transitioning our security system ownership model to a predominately Company-owned model in May 2020.

1 unchanged sentence

(“Defenders”) (the “Defenders Acquisition”) in January 2020.

Since March 2021, substantially all new residential transactions take place under a Company-owned model.

The transition to a predominately Company-owned model is expected to continue to impact our results of operations and cash flow presentation during 2021 compared to 2020 due to different accounting policies applicable to a Company-owned model versus a customer-owned model.

We cannot be certain that our revenue model initiative, as described above, or the transition to a predominately Company-owned model, will achieve the desired outcomes.

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

We expect these changes to continue to impact our results of operations and cash flow presentation during 2021 compared to 2020 due to different accounting policies applicable to a Company-owned model versus a customer-owned model.

We cannot be certain our revenue model initiative, as described above, or the transition to a predominately Company-owned model, will achieve the desired outcomes.

Accordingly, these actions could have a material adverse effect on our business, financial condition, results of operations, cash flows, and key performance indicators.

Sunpro Solar Acquisition

In November 2021, we 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 our common stock, subject to adjustment as set forth in the Purchase Agreement.

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

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.

KEY PERFORMANCE INDICATORS

In evaluating our results, we utilize key performance indicators, which include non-GAAP measures as well as certain other operating metrics such as recurring monthly revenue and gross customer revenue attrition.

Our computations of key performance indicators may not be comparable to other similarly titled measures reported by other companies.

Additionally, our operating metric key performance indicators are approximated as there may be variations to reported results in each period due to certain adjustments we might make in connection with the integration over several periods of acquired companies that calculated these metrics differently, or otherwise, including periodic reassessments and refinements in the ordinary course of business.

In evaluating our results, we utilize key performance indicators, which include the non-GAAP measure Adjusted EBITDA, as well as certain other operating metrics such as recurring monthly revenue and gross customer revenue attrition.

Computations of our key performance indicators may not be comparable to other similarly titled measures reported by other companies.

Certain operating metrics are approximated, as there may be variations to reported results in each period due to certain adjustments we might make in connection with the integration over several periods of acquired companies that calculated these metrics differently, or otherwise, including periodic reassessments and refinements in the ordinary course of business.

These refinements, for example, may include changes due to systems conversions or historical methodology differences in legacy systems.

3 unchanged sentences

Gross Customer Revenue Attrition

A portion of our customer base can be expected to cancel its service every year.

Customers may choose not to renew or may terminate their contracts for a variety of reasons, including relocation, cost, loss to competition, or service issues.

Gross customer revenue attrition has a direct impact on our financial results, including revenue, operating income, and cash flows.

Gross customer revenue attrition is defined as RMR lost as a result of customer attrition, net of dealer charge-backs and reinstated customers, excluding contracts monitored but not owned and DIY customers.

2 unchanged sentences

Gross customer revenue attrition is calculated on a trailing twelve-month basis, the numerator of which is the RMR lost during the period due to attrition, net of dealer charge-backs and reinstated customers, excluding contracts monitored but not owned and DIY customers, and the denominator of which is total annualized RMR based on an average of RMR under contract at the beginning of each month during the period.

We believe the presentation of gross customer revenue attrition is useful as it has a direct impact on our financial results, including revenue, operating income, and cash flows.

Adjusted EBITDA

Adjusted EBITDA is a non-GAAP measure that we believe is useful to investors to measure the operational strength and performance of our business.

We believe the non-GAAP measure Adjusted EBITDA is useful to investors to measure the operational strength and performance of our business.

Our definition of Adjusted EBITDA, a reconciliation of Adjusted EBITDA to net loss (the most comparable GAAP measure), and additional information, including a description of the limitations relating to the use of Adjusted EBITDA, are provided under “—Non-GAAP Measures.”

RESULTS OF OPERATIONS

Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020

Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020

The following table presents our condensed consolidated results of operations and key performance indicators:

(in thousands, except as otherwise indicated)

Three Months Ended

Three Months Ended September 30,

Results of Operations:

June 30, 2021 June 30, 2020 $ Change

2021 2020 $ Change

Monitoring and related services $ 1,098,389 $ 1,045,677 $ 52,712

6 unchanged sentences

Merger, restructuring, integration, and other (6,723) (6,117) (606)

Operating (loss) income (1,879) 50,422 (52,301)

Operating income 23,096 62,886 (39,790)

Interest expense, net (133,275) (156,759) 23,484

15 unchanged sentences

Monitoring and Related Services Revenue (“M&S Revenue”)

The following table presents M&S Revenue in total and by segment:

Three Months Ended

M&S Revenue in total and by segment were as follows:

Three Months Ended September 30,

(in thousands)

June 30, 2021 June 30, 2020 $ Change

2021 2020 $ Change

CSB $ 975,810 $ 940,493 $ 35,317

1 unchanged sentence

Total M&S Revenue $ 1,098,389 $ 1,045,677 $ 52,712

The increase in total M&S Revenue was primarily attributable to higher recurring revenue in CSB, which was driven by (i) improvements in average pricing as new and existing customers selected higher priced interactive and other services and (ii) an increase in the number of customers over the period primarily due to a higher volume of dealer-generated and bulk account purchases.

The increase in total M&S Revenue was primarily attributable to higher recurring revenue in our CSB segment, which was driven by (i) improvements in average pricing as new and existing customers selected higher priced interactive and other services and (ii) an increase in the number of customers over the period primarily due to a higher volume of dealer-generated and bulk account purchases.

The increase in Commercial was driven by higher recurring revenue primarily due to an increase in the number of customers over the period, including the acquisition of businesses and customer accounts and improvements in customer retention.

Refer to the discussion below under “—M&S Revenue” for the six months ended June 30, 2021 compared to 2020 for changes in RMR and gross customer revenue attrition.

Refer to the discussion below under “—M&S Revenue” for the nine months ended September 30, 2021 compared to 2020 for changes in RMR and gross customer revenue attrition.

Installation and Other Revenue

The following table presents installation and other revenue in total and by segment:

Three Months Ended

Installation and other revenue in total and by segment were as follows:

Three Months Ended September 30,

(in thousands)

June 30, 2021 June 30, 2020 $ Change

2021 2020 $ Change

CSB $ 59,790 $ 119,895 $ (60,105)

1 unchanged sentence

Total installation and other revenue $ 218,613 $ 253,247 $ (34,634)

Total installation and other revenue decreased primarily due to a lower volume of outright sales transactions in CSB, driven by our transition to a predominately Company-owned model, partially offset by an increase in the current period in outright sales transactions in Commercial as compared to the prior period that was impacted by the COVID-19 Pandemic, as well as from acquisitions.

Total installation and other revenue decreased primarily due to CSB, which was driven by a lower volume of outright sales transactions partially offset by additional amortization of deferred subscriber acquisition revenue as a result of our transition to a predominately Company-owned model.

The increase in Commercial was driven by an increase in installation revenue in the current period as compared to the prior period which was impacted by the COVID-19 Pandemic, as well as from acquisitions.

Cost of Revenue

The following table presents cost of revenue in total and by segment:

Three Months Ended

Cost of revenue in total and by segment were as follows:

Three Months Ended September 30,

(in thousands)

June 30, 2021 June 30, 2020 $ Change

2021 2020 $ Change

CSB $ 172,483 $ 190,827 $ (18,344)

1 unchanged sentence

Total cost of revenue $ 371,985 $ 357,895 $ 14,090

Total cost of revenue remained relatively flat year over year and included a decrease in CSB offset by an increase in Commercial.

The increase in total cost of revenue was driven by an increase in Commercial, which was primarily due to higher installation costs, as well as field service and call center costs, in the current period as compared to the prior period which was impacted by the COVID-19 Pandemic, as well as from acquisitions.

The decrease in CSB was primarily driven by a decrease in installation costs due to a lower volume of outright sales transactions as a result of our transition to a predominately Company-owned model.

The decrease was partially offset by higher field service and call center costs primarily due to an increase in service ticket and call volume as compared to the prior period that was impacted by the COVID-19 Pandemic.

The increase in Commercial was driven by an increase in installation costs in the current period as compared to the prior period that was impacted by the COVID-19 Pandemic, partially offset by cost savings initiatives.

Selling, General, and Administrative Expenses

The increase in selling, general, and administrative expenses was primarily driven by:

• increases in radio conversion costs of $57 million primarily related to an increase in the number of conversions of customers in our CSB segment;

• decreases in the provision for credit losses of $18 million and $4 million in our CSB and Commercial segments, respectively, primarily due to the impact of the COVID-19 Pandemic in the prior year;

• decreases in share-based compensation, as well as lower selling costs (primarily commissions) partially offset by an increase in amortization of deferred subscriber acquisition costs.

The increase in selling, general, and administrative expenses was driven by a $41 million increase in radio conversion costs primarily related to an increase in the number and cost of conversions.

Depreciation and Intangible Asset Amortization

The increase in depreciation and intangible asset amortization was primarily driven by increases in amortization of customer contracts acquired under the ADT Authorized Dealer Program and from other third parties and depreciation of subscriber system assets, partially offset by a decrease in amortization of customer relationships.

Merger, Restructuring, Integration, and Other

Merger, restructuring, integration, and other was primarily comprised of gains related to the remeasurement of liability-classified contingent consideration during the three months ended September 30, 2021, and fair value adjustments associated with strategic equity investments during the three months ended September 30, 2020.

Interest Expense, net

The decrease in interest expense, net, was primarily driven by an unrealized loss of $14 million on interest rate swaps contracts not designated as cash flow hedges during the three months ended June 30, 2021, as compared to an unrealized loss of $28 million during the prior period.

The decrease in interest expense, net, was primarily driven by a $15 million increase in unrealized gains on interest rate swap contracts not designated as cash flow hedges primarily due to an increase in the London Interbank Offered Rate (“LIBOR”).

The remainder of the decrease was primarily due to our first lien term loan refinancing in January 2021.

Loss on Extinguishment of Debt

During the three 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 $1.0 billion redemption of the 3.50% notes due 2022 (“ADT Notes due 2022”) in August 2021 (“ADT Notes due 2022 Redemption”).

During the three months ended September 30, 2020, loss on extinguishment of debt totaled $49 million and was primarily due to the call premium and write-off of unamortized fair value adjustments in connection with the $1.0 billion redemption of our 6.25% notes due 2021 in September 2020.

Income Tax Benefit

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.

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.

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.

Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020

Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020

The following table presents our condensed consolidated results of operations and key performance indicators:

(in thousands, except as otherwise indicated)

Six Months Ended

Nine Months Ended September 30,

Results of Operations:

June 30, 2021 June 30, 2020 $ Change

2021 2020 $ Change

Monitoring and related services $ 3,244,675 $ 3,133,013 $ 111,662

5 unchanged sentences

Merger, restructuring, integration, and other 18,588 114,715 (96,127)

Operating loss (18,259) (38,934) 20,675

Operating income 4,837 23,952 (19,115)

Interest expense, net (347,524) (569,391) 221,867

15 unchanged sentences

Monitoring and Related Services Revenue

The following table presents M&S Revenue in total and by segment:

Six Months Ended

M&S Revenue in total and by segment are as follows:

Nine Months Ended September 30,

(in thousands)

June 30, 2021 June 30, 2020 $ Change

2021 2020 $ Change

CSB $ 2,892,291 $ 2,814,482 $ 77,809

3 unchanged sentences

Total RMR was $352 million and $339 million as of June 30, 2021 and 2020, respectively.

Total RMR was $356 million and $341 million as of September 30, 2021 and 2020, respectively.

The increase in RMR was primarily due to improvements in average pricing and net customer additions.

Gross customer revenue attrition was 13.3% and 13.1% as of June 30, 2021 and 2020, respectively.

The increase in gross customer revenue attrition was attributable to a lower volume of dealer charge-backs primarily related to the Defenders Acquisition in 2020 and an increase in relocations, partially offset by fewer non-payment disconnects and the benefit of customer retention initiatives.

Gross customer revenue attrition was 13.4% and 12.9% as of September 30, 2021 and 2020, respectively.

The increase in gross customer revenue attrition was primarily attributable to an increase in relocations during 2021 as compared to the prior year when the COVID-19 Pandemic temporarily caused fewer relocations, and a lower volume of dealer charge-backs primarily related to the Defenders Acquisition in 2020, partially offset by fewer non-payment disconnects and the benefit of customer retention initiatives.

Installation and Other Revenue

The following table presents installation and other revenue in total and by segment:

Six Months Ended

Installation and other revenue in total and by segment were as follows:

Nine Months Ended September 30,

(in thousands)

June 30, 2021 June 30, 2020 $ Change

2021 2020 $ Change

CSB $ 204,561 $ 459,259 $ (254,698)

1 unchanged sentence

Total installation and other revenue $ 681,448 $ 867,050 $ (185,602)

Cost of Revenue

The following table presents cost of revenue in total and by segment:

Six Months Ended

Cost of revenue in total and by segment were as follows:

Nine Months Ended September 30,

(in thousands)

June 30, 2021 June 30, 2020 $ Change

2021 2020 $ Change

CSB $ 553,620 $ 631,129 $ (77,509)

1 unchanged sentence

Total cost of revenue $ 1,134,736 $ 1,142,228 $ (7,492)

The decrease in total cost of revenue was primarily attributable to CSB partially offset by an increase in Commercial.

The decrease in CSB was primarily driven by a decrease in installation costs due to a lower volume of outright sales transactions as a result of our transition to a predominately Company-owned model.

The decrease in cost of revenue in CSB was primarily driven by a decrease in installation costs due to a lower volume of outright sales transactions as a result of our transition to a predominately Company-owned model, partially offset by higher field service and call center costs as compared to the prior period which was impacted by the COVID-19 Pandemic.

The increase in Commercial was driven by an increase in installation costs, as well as field service and call center costs, in the current period as compared to the prior period which was impacted by the COVID-19 Pandemic, as well as from acquisitions.

Selling, General, and Administrative Expenses

The increase in selling, general, and administrative expenses was driven by:

• increases in radio conversion costs of $111 million primarily related to an increase in the number of conversions of customers in our CSB segment;

• decreases in the provision for credit losses of $39 million and $15 million in our CSB and Commercial segments, respectively, primarily due to the impact of the COVID-19 Pandemic in the prior year;

• decreases in share-based compensation, as well as lower selling costs (primarily commissions) partially offset by an increase in amortization of deferred subscriber acquisition costs.

• an increase in radio conversion costs of $152 million primarily related to an increase in the number and cost of conversions, partially offset by

• decreases in the provision for credit losses of $42 million and $20 million in our CSB and Commercial segments, respectively, primarily due to the impact of the COVID-19 Pandemic in the prior year, as well as a lower volume of outright sales transactions in CSB as a result of our transition to a predominately Company-owned model, and

• a decrease in commissions, partially offset by an increase in amortization of deferred subscriber acquisition costs, as a result of our transition to a predominately Company-owned model.

The remainder of the change was attributable to higher general and administrative expenses primarily due to investments in our information technology infrastructure, higher selling costs, and lower share-based compensation expense.

Depreciation and Intangible Asset Amortization

The decrease in depreciation and intangible asset amortization expense was primarily due to decreases related to contracts and related customer relationships and subscriber system assets.

The decrease in depreciation and intangible asset amortization was primarily driven by a decrease in amortization of customer relationships, partially offset by increases in amortization of (i) customer contracts acquired under the ADT Authorized Dealer Program and from other third parties and (ii) other intangible assets.

Merger, Restructuring, Integration, and Other

During the six months ended June 30, 2021, merger, restructuring, integration, and other primarily included an $18 million impairment charge due to lower than expected benefits from the Cell Bounce developed technology intangible asset as a result of recent worldwide shortages for certain electronic components.

During the six months ended June 30, 2020, merger, restructuring, integration, and other primarily included losses of $81 million associated with the settlement of a pre-existing relationship in connection with the Defenders Acquisition and $12 million due to fair value remeasurements on a strategic investment.

During the six months ended June 30, 2021 and 2020, amounts included in merger, restructuring, integration, and other primarily related to our CSB segment.

During the nine months ended September 30, 2021, merger, restructuring, integration, and other primarily included an $18 million impairment charge in our CSB segment due to lower than expected benefits from the Cell Bounce developed technology intangible asset as a result of recent worldwide shortages for certain electronic components.

During the nine months ended September 30, 2020, merger, restructuring, integration, and other primarily related to losses of $81 million associated with the settlement of a pre-existing relationship in connection with the Defenders Acquisition.

Interest Expense, net

The decrease in interest expense, net, was primarily driven by an unrealized gain of $92 million on interest rate swap contracts not designated as cash flow hedges during the six months ended June 30, 2021, as compared to an unrealized loss of $98 million during the prior year.

The decrease in interest expense, net, was primarily driven by an unrealized gain of $115 million on interest rate swap contracts not designated as cash flow hedges during the nine months ended September 30, 2021, as compared to an unrealized loss of $90 million during the prior year, primarily due to an increase in LIBOR.

Loss on Extinguishment of Debt

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 second lien notes in February 2020.

In addition to the amounts discussed above for the three months ended September 30, 2021 as compared to 2020, the nine months ended September 30, 2020 also included $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.

Income Tax Benefit

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%.

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.

3 unchanged sentences

Adjusted EBITDA

We believe that the presentation of Adjusted EBITDA is appropriate to provide additional information to investors about our operating profitability adjusted for certain non-cash items, non-routine items that we do not expect to continue at the same level in the future, as well as other items that are not core to our operations.

Further, we believe Adjusted EBITDA provides a meaningful measure of operating profitability because we use it for evaluating our business performance, making budgeting decisions, and comparing our performance against that of other peer companies using similar measures.

We define Adjusted EBITDA 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.

We believe the presentation of Adjusted EBITDA is useful as it provides investors additional information about our operating profitability adjusted for certain non-cash items, non-routine items that we do not expect to continue at the same level in the future, as well as other items that are not core to our operations.

We define Adjusted EBITDA 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.

There are material limitations to using Adjusted EBITDA.

1 unchanged sentence

These limitations are best addressed by considering the economic effects of the excluded items independently and by considering Adjusted EBITDA in conjunction with net income or loss as calculated in accordance with GAAP.

Adjusted EBITDA

The table below reconciles Adjusted EBITDA to net loss:

Three Months Ended Six Months Ended

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

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

(in thousands) 2021 2020 $ Change 2021 2020 $ Change

Net loss $ (109,129) $ (113,098) $ 3,969 $ (282,873) $ (520,132) $ 237,259

9 unchanged sentences

52,295 12,641 39,654 171,659 24,311 147,348

Financing and consent fees (2)

399 10 389 3,745 5,260 (1,515)

(944) (2,608) 1,664 (4,129) (2,428) (1,701)

Other 365 (851) 1,216 (19) 1,981 (2,000)

Adjusted EBITDA $ 554,310 $ 563,809 $ (9,499) $ 1,638,306 $ 1,666,408 $ (28,102)

___________________

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

(2) Represents fees expensed associated with financing transactions.

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

The following table presents Adjusted EBITDA in total and by segment:

Three Months Ended Six Months Ended

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

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

Adjusted EBITDA in total and by segment were as follows:

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

(in thousands) 2021 2020 $ Change 2021 2020 $ Change

CSB $ 528,680 $ 548,965 $ (20,285) $ 1,558,055 $ 1,636,726 $ (78,671)

1 unchanged sentence

Adjusted EBITDA $ 554,310 $ 563,809 $ (9,499) $ 1,638,306 $ 1,666,408 $ (28,102)

Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020

The decrease in total Adjusted EBITDA was primarily attributable to CSB, which was driven by a decrease in installation and other revenue, net of the associated costs, from a lower volume of outright sales transactions primarily due to our transition to a predominately Company-owned model, as well as higher field service and call center costs.

This decrease was partially offset by (i) higher recurring revenue, (ii) lower selling expenses (primarily commissions), and (iii) a lower provision for credit losses.

The increase in Adjusted EBITDA in Commercial was driven by higher installation and other revenue, net of the associated costs, in the current period as compared to the prior period that was impacted by the COVID-19 Pandemic, as well as cost savings initiatives.

The explanations above exclude amounts outside of our definition of Adjusted EBITDA, as applicable.

The explanations below exclude amounts outside of our definition of Adjusted EBITDA, as applicable.

Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020

The decrease in total Adjusted EBITDA was primarily attributable to CSB, which was driven by (i) a decrease in installation revenue, net of the associated installation costs and commissions, from a lower volume of outright sales transactions and (ii) an increase in selling and general and administrative expenses, partially offset by an increase in M&S Revenue.

The increase in Commercial was primarily driven by (i) an increase in M&S Revenue, (ii) an increase in installation revenue, net of the associated installation costs and commissions, and (iii) a decrease in the provision for credit losses, partially offset by an increase in field service and call center costs.

Refer to the discussions above under “—Results of Operations” for further details.

Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020

This decrease was partially offset by (i) higher recurring revenue, (ii) a lower provision for credit losses, and (iii) lower selling expenses (primarily commissions).

The increase in Adjusted EBITDA in Commercial was driven by (i) higher installation and other revenue, net of the associated costs, in the current period as compared to the prior period that was impacted by the COVID-19 Pandemic, as well as cost savings initiatives, (ii) higher recurring revenue, and (iii) a lower provision for credit losses.

The explanations above exclude amounts outside of our definition of Adjusted EBITDA, as applicable.

Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020

The decrease in total Adjusted EBITDA was primarily attributable to CSB, which was driven by (i) a decrease in installation revenue, net of the associated installation costs and commissions, from a lower volume of outright sales transactions, (ii) an increase in field service and call center costs, and (iii) an increase in selling and general and administrative expenses, partially offset by an increase in M&S Revenue and a decrease in the provision for credit losses.

Refer to the discussions above under “—Results of Operations” for further details.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2021, liquidity and capital resources primarily consisted of the following:

(in thousands)

Cash and cash equivalents $ 61,207

Availability under First Lien Revolving Credit Facility $ 575,000

Uncommitted available borrowing capacity under Receivables Facility $ 34,518

Carrying amount of total debt outstanding $ 9,609,699

We expect our ongoing sources of liquidity to include cash generated from operations, borrowings under our revolving credit facility and Receivables Facility, and the issuance of equity and/or debt securities as appropriate given market conditions.

Our future cash needs are expected to include cash for operating activities, working capital, capital expenditures, strategic investments, periodic principal and interest payments on our debt, and potential dividend payments to our stockholders.

We are a highly leveraged company with significant debt service requirements.

We may, from time to time, seek to repay, redeem, repurchase, or refinance our indebtedness, or seek to retire or purchase our outstanding securities through cash purchases in the open market or through privately negotiated transactions or through a 10b5-1 repurchase plan or otherwise, and any such transactions may involve material amounts.

We believe our cash position, borrowing capacity available under our revolving credit facility and Receivables Facility, and cash provided by operating activities are, and will continue to be, adequate to meet our operational and business needs in the next twelve months as well as our long-term liquidity needs.

We are a highly leveraged company with significant debt service requirements.

As of June 30, 2021, we had $150 million in cash and cash equivalents.

In addition, we had $400 million available under our first lien revolving credit facility (the “First Lien Revolving Credit Facility”) and an uncommitted available borrowing capacity of $70 million under our Receivables Facility that is dependent on the volume of eligible retail installment contract receivables that can be sold under our Receivables Facility.

The carrying amount of total debt outstanding was approximately $9.6 billion as of June 30, 2021.

Long-Term Debt

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

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

First Lien Credit Agreement

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

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

Additionally, the amendment requires us 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.

We 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, we had no borrowings outstanding under our First Lien Revolving Credit Facility.

In July 2021, we 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.

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

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

Receivables Facility

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

As of June 30, 2021, we had an outstanding balance of $130 million and an uncommitted available borrowing capacity of $70 million under the Receivables Facility that is dependent on the volume of eligible retail installment contract receivables that can be sold.

In March 2021, we 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%.

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

As of September 30, 2021, we had no borrowings outstanding under our First Lien Revolving Credit Facility.

First Lien Notes due 2029

1 unchanged sentence

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.

We intend 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, we issued a Notice of Redemption with respect to all of the outstanding ADT Notes Due 2022, and we expect 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.

The related deferred financing costs were not material.

Refer to Note 6 “Debt” for further discussion regarding the First Lien Notes due 2029.

ADT Notes due 2022 Redemption

In August 2021, we 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 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.

Receivables Facility

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

As of September 30, 2021, we had an outstanding balance of $165 million and an uncommitted available borrowing capacity of $35 million under the Receivables Facility.

During the nine months ended September 30, 2021, we received proceeds of $118 million under the Receivables Facility and repaid $28 million.

In October 2021, we 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 Receivables Facility’s uncommitted revolving period was extended to October 2022.

Debt Covenants

As of June 30, 2021, we were in compliance with all financial covenant and other maintenance tests for all our debt obligations, and we do not believe there is a material risk of future noncompliance with our financial covenant and other maintenance tests as a result of the COVID-19 Pandemic.

The following table presents our 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

As of September 30, 2021, we were in compliance with all financial covenant and other maintenance tests for all our debt obligations, and we do not believe there is a material risk of future noncompliance with our financial covenant and other maintenance tests as a result of the COVID-19 Pandemic, or otherwise.

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

On August 4, 2021, we 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, we 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 our Common Stock.

On November 9, 2021, we 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, we 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 our 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, we approved a share repurchase program (the “Share Repurchase Program”), which authorized us to repurchase shares of our 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, we approved a share repurchase program (the “Share Repurchase Program”), which authorized us to repurchase shares of our 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.

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

Cash Flow Analysis

The following table presents a summary of our cash flow activity:

Six Months Ended

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

Nine Months Ended September 30,

(in thousands) 2021 2020 $ Change

Net cash provided by operating activities $ 1,155,353 $ 993,269 $ 162,084

Net cash used in investing activities $ (1,170,649) $ (800,275) $ (370,374)

Net cash used in financing activities $ (59,740) $ (96,027) $ 36,287

Net cash (used in) provided by financing activities $ (124,081) $ 249,156 $ (373,237)

Cash Flows from Operating Activities

The increase in net cash provided by operating activities was primarily due to (i) a decrease in the volume of residential outright sales transactions, (ii) a payment in the first quarter of 2020 of $81 million related to the settlement of a pre-existing relationship in connection with the Defenders Acquisition, and (iii) a decrease in cash interest of $23 million.

The increase in net cash provided by operating activities was partially offset by higher net payments for radio conversion costs of $116 million.

The increase in cash flows from operating activities was primarily due to:

• a lower volume of residential outright sales transactions as compared to Company-owned transactions resulting from the transition in 2020 to a predominately Company-owned model;

• a decrease in outflows of $81 million due to a payment in the first quarter of 2020 related to the settlement of a pre-existing relationship in connection with the Defenders Acquisition;

• a decrease in cash interest of $51 million from various refinancing transactions of our long-term debt.

The increase was partially offset by an increase of $155 million in payments related to radio conversion costs, net of the related incremental revenue.

The remainder of the activity related to changes in assets and liabilities due to the volume and timing of other operating cash receipts and payments with respect to when the transactions are reflected in earnings.

1 unchanged sentence

Cash Flows from Investing Activities

The increase in net cash used in investing activities was primarily due to (i) an increase of $202 million due to a higher volume of subscriber system assets expenditures primarily as a result of the transition in 2020 to a predominately Company-owned model and (ii) an increase of $195 million due to a higher volume of dealer generated customer accounts and bulk account purchases including accounts purchased from a third party in February 2021 and an advance payment received in 2020 for dealer charge-backs in connection with the Defenders Acquisition.

The increase in net cash used in investing activities was partially offset by a decrease in cash paid for business acquisitions, net of cash acquired, of $163 million primarily due to the Defenders Acquisition in 2020.

The increase in cash used in investing activities was primarily due to:

• an increase in dealer generated customer account and bulk account purchases of $247 million due to a higher volume of dealer account purchases, including accounts purchased from a third party, and the impact of an advance payment received in 2020 for dealer charge-backs in connection with the Defenders Acquisition;

• an increase in subscriber system assets expenditures of $246 million due to a higher volume of Company-owned transactions as compared to outright sales transactions resulting from the transition in 2020 to a predominately Company-owned model;

partially offset by

• a decrease in cash paid for business acquisitions, net of cash acquired of $166 million primarily due to the Defenders Acquisition in 2020.

Cash Flows from Financing Activities

During the six months ended June 30, 2021, net cash used in financing activities primarily consisted of $58 million of dividend payments on common stock and $28 million of payments on interest rate swap contracts that included an other-than-insignificant financing element at inception.

These outflows were partially offset by $55 million of net proceeds under the Receivables Facility.

During the six months ended June 30, 2020, net cash used in financing activities primarily consisted of $53 million of dividend payments on common stock, $34 million of net repayments of long-term borrowings, and $16 million related to the payment of deferred financing fees.

These outflows were partially offset by $19 million of net proceeds under the Receivables Facility.

The change in cash flows from financing activities was primarily due to a decrease in proceeds from the issuance of common stock attributable to the $450 million of proceeds associated with the issuance of Class B Common Stock in 2020, partially offset by:

• a decrease of $44 million in net repayments of long-term borrowings, including finance leases, primarily due to a decrease in call premiums partially offset by higher net principal payments on long-term debt and

• an increase of $48 million in net proceeds from the Receivables Facility due to one additional quarter of activity in 2021.

The remainder of the change was primarily due to increases in (i) payments related to interest rate swap contracts that included an other-than-insignificant financing element at inception, (ii) transactions related to employee share-based compensation plans, and (iii) dividends on common stock, partially offset by a decrease in payments for deferred financing costs.

COMMITMENTS AND CONTRACTUAL OBLIGATIONS

In our 2020 Annual Report, we disclosed our commitments and contractual obligations.

There have been no material changes to these commitments and contractual obligations, except as discussed below.

During the six months ended June 30, 2021, we entered into various commitments to purchase certain parts used in our program to replace 3G and CDMA cellular equipment used in our security systems.

As of June 30, 2021, we had $ 55 million outstanding related to these obligations.

In addition, we 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.

During the nine months ended September 30, 2021, there have been no material changes to commitments and contractual obligations as disclosed in our 2020 Annual Report, except as discussed below:

We 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, of which approximately half have not been purchased as of September 30, 2021.

Refer to the discussion above under “—Liquidity and Capital Resources” for further details regarding significant changes to our long-term debt.

OFF-BALANCE SHEET ARRANGEMENTS

During the six months ended June 30, 2021, there have been no material changes to our off-balance sheet arrangements as disclosed in our 2020 Annual Report.

During the nine months ended September 30, 2021, there have been no material changes to our off-balance sheet arrangements as disclosed in our 2020 Annual Report.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

2 unchanged sentences

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

In our 2020 Annual Report, we identified our accounting policies that are based on, among other things, estimates and judgments made by management that include inherent risks and uncertainties.

We disclosed our accounting policies in our 2020 Annual Report, which are based on, among other things, estimates and judgments made by management that include inherent risks and uncertainties.

Refer to Note 1 “Description of Business and Summary of Significant Accounting Policies” to the condensed consolidated financial statements for further information about recent accounting pronouncements and adoptions.

4 unchanged sentences

management’s plans and objectives for future operations;

our proposed acquisition of Sunpro Solar and its anticipated impact on our business and financial condition;

business prospects;

8 unchanged sentences

However, the absence of these words or similar expressions does not mean that a statement is not forward-looking.

Forward-looking information involves risks, uncertainties, and other factors that could cause actual results to differ materially from those expressed or implied in, or reasonably inferred from, such statements, including without limitation, the risks and uncertainties disclosed or referenced in Part II Item 1A.

of this report under the heading “Risk Factors.” Therefore, caution should be taken not to place undue reliance on any such forward-looking statements.

Forward-looking information involves risks, uncertainties, and other factors that could cause actual results to differ materially from those expressed or implied in, or reasonably inferred from, such statements, including without limitation, risks and uncertainties related to the parties’ ability to successfully close the Sunpro Solar acquisition, which is subject to various closing conditions;

our ability to integrate the acquired business successfully and to achieve synergies and other benefits;

the possibility that other anticipated benefits may not be timely realized, if at all;

the acquisition potentially causing disruption to the Sunpro Solar business and to its customers;

the acquisition potentially distracting our management team from our existing business;

the acquisition potentially adversely impacting our financial results;

other risks associated with our ability to execute on the transaction;

and the risks and uncertainties disclosed or referenced in Part II Item 1A.

of this report under the heading “Risk Factors.” Therefore, caution should be taken to not place undue reliance on any such forward-looking statements.

Much of the information in this report that looks toward future performance of the Company is based on various factors and important assumptions about future events that may or may not actually occur.

2 unchanged sentences

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 2. Management’s Discussion and Analysis