ADT Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS. ADT INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands, except share and per share data) September 30, 2021 December 31, 2020 Assets Current assets: Cash and cash equivalents $ 61,207 $ 204,998 Accounts receivable, net of allowance for credit losses of $ 60,110 and $ 68,342 , respectively 363,060 336,033 Inventories, net 214,205 174,839 Work-in-progress 55,176 41,312 Prepaid expenses and other current assets 178,015 210,212 Total current assets 871,663 967,394 Property and equipment, net 334,862 325,716 Subscriber system assets, net 2,817,855 2,663,228 Intangible assets, net 5,520,747 5,906,690 Goodwill 5,244,942 5,236,302 Deferred subscriber acquisition costs, net 796,574 654,019 Other assets 435,279 363,587 Total assets $ 16,021,922 $ 16,116,936 Liabilities and stockholders' equity Current liabilities: Current maturities of long-term debt $ 101,358 $ 44,764 Accounts payable 361,020 321,595 Deferred revenue 339,182 345,582 Accrued expenses and other current liabilities 607,276 584,151 Total current liabilities 1,408,836 1,296,092 Long-term debt 9,508,341 9,447,780 Deferred subscriber acquisition revenue 1,098,769 832,166 Deferred tax liabilities 900,388 990,899 Other liabilities 365,272 510,663 Total liabilities 13,281,606 13,077,600 Commitments and contingencies (See Note 12) Stockholders' equity: Preferred stock—authorized 1,000,000 shares of $ 0.01 par value; 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 776,410,398 and 771,013,638 as of September 30, 2021 and December 31, 2020, respectively. 7,764 7,710 Class B common stock—authorized 100,000,000 shares of $ 0.01 par value; issued and outstanding shares of 54,744,525 as of September 30, 2021 and December 31, 2020. 547 547 Additional paid-in capital 6,677,875 6,640,763 Accumulated deficit ( 3,862,964 ) ( 3,491,069 ) Accumulated other comprehensive loss ( 82,906 ) ( 118,615 ) Total stockholders' equity 2,740,316 3,039,336 Total liabilities and stockholders' equity $ 16,021,922 $ 16,116,936 See Notes to Condensed Consolidated Financial Statements 1 ADT INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except per share data) 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 Installation and other 218,613 253,247 681,448 867,050 Total revenue 1,317,002 1,298,924 3,926,123 4,000,063 Cost of revenue (exclusive of depreciation and amortization shown separately below) 371,985 357,895 1,134,736 1,142,228 Selling, general, and administrative expenses 448,634 410,914 1,343,872 1,278,929 Depreciation and intangible asset amortization 480,010 473,346 1,424,090 1,440,239 Merger, restructuring, integration, and other ( 6,723 ) ( 6,117 ) 18,588 114,715 Operating income 23,096 62,886 4,837 23,952 Interest expense, net ( 133,275 ) ( 156,759 ) ( 347,524 ) ( 569,391 ) Loss on extinguishment of debt ( 36,957 ) ( 48,916 ) ( 37,113 ) ( 114,759 ) Other income 1,511 1,992 4,847 6,572 Loss before income taxes ( 145,625 ) ( 140,797 ) ( 374,953 ) ( 653,626 ) Income tax benefit 36,496 27,699 92,080 133,494 Net loss $ ( 109,129 ) $ ( 113,098 ) $ ( 282,873 ) $ ( 520,132 ) 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: 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 ADT INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited) (in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Net loss $ ( 109,129 ) $ ( 113,098 ) $ ( 282,873 ) $ ( 520,132 ) Other comprehensive income (loss), net of tax: Cash flow hedges 11,790 11,607 34,827 ( 75,891 ) Defined benefit pension plans ( 2 ) ( 16 ) 882 ( 21 ) Total other comprehensive income (loss), net of tax 11,788 11,591 35,709 ( 75,912 ) Comprehensive loss $ ( 97,341 ) $ ( 101,507 ) $ ( 247,164 ) $ ( 596,044 ) See Notes to Condensed Consolidated Financial Statements 3 ADT INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) (in thousands) 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 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 — — — — — ( 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 ) 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 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 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 ) Share-based compensation expense — — — — 26,431 — — 26,431 Transactions related to employee share-based compensation plans and other 293 — 3 — 1,208 ( 450 ) — 761 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 4 ADT INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) (in thousands) Nine 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 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 ) Other comprehensive income, net of tax — — — — — — 35,709 35,709 Dividends, including dividends reinvested in common stock — — — — 4 ( 87,506 ) — ( 87,502 ) Share-based compensation expense — — — — 45,848 — — 45,848 Transactions related to employee share-based compensation plans and other 5,396 — 54 — ( 8,740 ) ( 1,516 ) — ( 10,202 ) 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 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 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 ) Net loss — — — — — ( 520,132 ) — ( 520,132 ) Other comprehensive loss, net of tax — — — — — — ( 75,912 ) ( 75,912 ) 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 ) Share-based compensation expense — — — — 74,758 — — 74,758 Transactions related to employee share-based compensation plans and other 820 — 8 — 929 ( 2,027 ) — ( 1,090 ) 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 5 ADT INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Nine Months Ended September 30, 2021 2020 Cash flows from operating activities: Net loss $ ( 282,873 ) $ ( 520,132 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and intangible asset amortization 1,424,090 1,440,239 Amortization of deferred subscriber acquisition costs 91,364 70,226 Amortization of deferred subscriber acquisition revenue ( 122,908 ) ( 90,346 ) Share-based compensation expense 45,848 74,758 Deferred income taxes ( 101,986 ) ( 147,007 ) Provision for losses on receivables and inventory 29,579 99,019 Loss on extinguishment of debt 37,113 114,759 Intangible asset impairments 17,883 — Unrealized (gain) loss on interest rate swap contracts ( 115,090 ) 89,589 Other non-cash items, net 99,654 103,688 Changes in operating assets and liabilities, net of effects of acquisitions: Deferred subscriber acquisition costs ( 234,715 ) ( 170,247 ) Deferred subscriber acquisition revenue 201,541 124,621 Other, net 65,853 ( 195,898 ) Net cash provided by operating activities 1,155,353 993,269 Cash flows from investing activities: Dealer generated customer accounts and bulk account purchases ( 512,304 ) ( 265,131 ) Subscriber system asset expenditures ( 518,780 ) ( 272,512 ) Purchases of property and equipment ( 126,678 ) ( 112,317 ) Acquisition of businesses, net of cash acquired ( 16,411 ) ( 182,154 ) Other investing, net 3,524 31,839 Net cash used in investing activities ( 1,170,649 ) ( 800,275 ) Cash flows from financing activities: Proceeds from issuance of common stock — 450,000 Proceeds from long-term borrowings 1,010,729 2,640,000 Proceeds from receivables facility 117,922 43,748 Repayment of long-term borrowings, including call premiums ( 1,074,689 ) ( 2,748,095 ) Repayment of receivables facility ( 28,215 ) ( 2,456 ) Dividends on common stock ( 87,164 ) ( 80,298 ) Deferred financing costs ( 12,358 ) ( 27,962 ) Other financing, net ( 50,306 ) ( 25,781 ) 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 See Notes to Condensed Consolidated Financial Statements 6 ADT INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Description of Business and Summary of Significant Accounting Policies Organization and Business ADT Inc., together with its wholly-owned subsidiaries (collectively, the “Company”), is a leading provider of security, automation, and smart home solutions serving consumers and businesses in the United States (“U.S.”). ADT Inc. was incorporated in the State of Delaware in May 2015 as a holding company with no assets or liabilities. In July 2015, the Company acquired Protection One, Inc. and ASG Intermediate Holding Corp. (collectively, the “Formation Transactions”), which were instrumental in the commencement of the Company’s operations. In May 2016, the Company acquired The ADT Security Corporation (formerly named The ADT Corporation) (“The ADT Corporation”) (the “ADT Acquisition”). The Company primarily conducts business under the ADT brand name. In January 2018, the Company completed an initial public offering (“IPO”) and its common stock (“Common Stock”) began trading on the New York Stock Exchange under the symbol “ADT.” In September 2020, the Company issued and sold 54,744,525 shares of Class B common stock, par value of $ 0.01 per share (“Class B Common Stock”), for an aggregate purchase price of $ 450 million to Google LLC (“Google”) in a private placement pursuant to a securities purchase agreement dated July 31, 2020 (the “Securities Purchase Agreement”). The Company is majority owned by Prime Security Services TopCo Parent, L.P. (“Ultimate Parent”). Ultimate Parent is majority owned by Apollo Investment Fund VIII, L.P. and its related funds that are directly or indirectly managed by affiliates of Apollo Global Management, Inc. (together with its subsidiaries and affiliates, “Apollo” or the “Sponsor”). Basis of Presentation and Significant Accounting Policies The preparation of the condensed consolidated financial statements in accordance with generally accepted accounting principles in the United States of America (“GAAP”) requires the Company to select accounting policies and make estimates that affect amounts reported in the condensed consolidated financial statements and the accompanying notes. The Company’s estimates are based on the relevant information available at the end of each period. Actual results could differ materially from these estimates under different assumptions or market conditions. The condensed consolidated financial statements included herein are unaudited, but in the opinion of management, such financial statements include all adjustments, consisting of normal recurring adjustments, necessary to summarize fairly the Company’s financial position, results of operations, and cash flows for the interim periods presented. The interim results reported in these condensed consolidated financial statements should not be taken as indicative of results that may be expected for future interim periods or the full year. For a more comprehensive understanding of the Company and its interim results, these condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Annual Report”), which was filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 25, 2021. 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 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 required in the annual consolidated financial statements. The condensed consolidated financial statements include the accounts of ADT Inc. and its wholly-owned subsidiaries and have been prepared in U.S. dollars in accordance with GAAP. All intercompany transactions have been eliminated. Certain prior period amounts have been reclassified to conform with the current period presentation. Segment Change Effective in the first quarter of 2021, the manner in which the Company’s Chief Executive Officer, who is the chief operating decision maker (the “CODM”), evaluates performance and makes decisions about how to allocate resources changed. Therefore, the Company now reports results in two operating and reportable segments, Consumer and Small Business (“CSB”) and Commercial, rather than a single operating and reportable segment. Where applicable, prior periods have been 7 retrospectively adjusted to reflect the new operating and reportable segment structure. The accounting policies of the Company’s reportable segments are the same as those of the Company. The Company organizes its segments based on customer type as follows: • Consumer and Small Business (CSB) - Customers in the CSB segment are comprised of residential homeowners, small business operators, and other individual consumers. The CSB segment primarily includes (i) revenue and operating costs from the sale, installation, servicing, and monitoring of integrated security and automation systems, as well as other offerings such as mobile security and home health solutions; (ii) other operating costs associated with support functions related to these operations; and (iii) general corporate costs and other income and expense items not included in the Commercial segment. Where applicable, results for the Company’s Canadian operations prior to its sale in the fourth quarter of 2019 are included in the CSB segment based on the primary customer market served in Canada. • Commercial - Customers in the Commercial segment are comprised of larger businesses with more expansive facilities (typically larger than 10,000 square feet) and/or multi-site operations, which often require more sophisticated integrated solutions. The Commercial segment primarily includes (i) revenue and operating costs from the sale, installation, servicing, and monitoring of integrated security and automation systems, fire detection and suppression systems, and other related offerings; (ii) other operating costs associated with support functions related to these operations; and (iii) dedicated corporate and other costs. Refer to Note 13 “Segment Information” for additional information on the Company’s segments. COVID-19 Pandemic During March 2020, the World Health Organization declared the outbreak of a novel coronavirus as a pandemic (the “COVID-19 Pandemic”). 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 All highly liquid investments with original maturities of three months or less from the time of purchase are considered to be cash equivalents. Restricted cash and restricted cash equivalents are cash and cash equivalents that are restricted for a specific purpose and cannot be included in the general cash and cash equivalents account. Restricted cash and restricted cash equivalents are reflected in prepaid expenses and other current assets in the Condensed Consolidated Balance Sheets. The 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 Ending balance $ 68,370 $ 207,747 8 Subscriber System Assets, net and Deferred Subscriber Acquisition Costs, net Subscriber system assets represent capitalized equipment and installation costs incurred in connection with transactions in which the Company retains ownership of the security system. 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 Accumulated depreciation ( 2,509,034 ) ( 2,152,058 ) Subscriber system assets, net $ 2,817,855 $ 2,663,228 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 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 Payroll-related accruals 156,326 99,771 Operating lease liabilities 33,085 30,689 Fair value of interest rate swaps 61,151 65,462 Other accrued liabilities 286,851 264,294 Accrued expenses and other current liabilities $ 607,276 $ 584,151 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 cellular network providers notifying the Company they will be retiring their 3G and CDMA networks during 2022. 9 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. 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 The Company’s financial instruments primarily consist of cash and cash equivalents, restricted cash and restricted cash equivalents, accounts receivable, retail installment contract receivables, accounts payable, debt, and derivative financial instruments. Due to their short-term and/or liquid nature, the fair values of cash, restricted cash, accounts receivable, and accounts payable approximate their respective carrying amounts . Cash Equivalents - Included in cash and cash equivalents are investments in money market mutual funds. 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. 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 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 Amount Fair Value Carrying Amount Fair Value Long-term debt instruments, excluding finance lease obligations $ 9,535,213 $ 9,983,945 $ 9,431,216 $ 10,127,291 10 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 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 Amount Fair Value Carrying Amount Fair Value Retail installment contract receivables, net $ 280,830 $ 216,633 $ 141,591 $ 112,676 Guarantees 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 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. Recently Adopted Accounting Pronouncements Financial Accounting Standards Board Accounting Standards Update (“ASU”) 2020-06, Debt with Conversion and Other Options and Derivatives and Hedging - Contracts in Entity’s Own Equity , provides guidance to ease the potential burden of accounting for convertible instruments, derivatives related to an entity’s own equity, and the related earnings per share considerations. The Company early adopted the guidance as of January 1, 2021. The impact from adoption was not material. ASU 2021-01, Reference Rate Reform (Topic 848) : Facilitation of the Effects of Reference Rate Reform on Financial Reporting, amends ASU 2020-04 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 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. 2. Revenue and Receivables Revenue The Company generates revenue primarily through contractual monthly recurring fees received for monitoring and related services provided to customers. 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. 11 The following table presents the Company’s disaggregated revenue: Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2021 2020 2021 2020 CSB: Monitoring and related services $ 975,810 $ 940,493 $ 2,892,291 $ 2,814,482 Installation and other 59,790 119,895 204,561 459,259 Total CSB 1,035,600 1,060,388 3,096,852 3,273,741 Commercial: Monitoring and related services 122,579 105,184 352,384 318,531 Installation and other 158,823 133,352 476,887 407,791 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. 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. 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. 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 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. 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. Approximately half of installation and other revenue generated by the Commercial segment is recognized over time. 12 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. 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. Revenue Model Initiative and Equipment Ownership Model Change 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. 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. 13 Changes in the allowance for credit losses on accounts receivable were as follows: Nine Months Ended September 30, (in thousands) 2021 2020 (1) Beginning balance $ 68,342 $ 42,960 Provision for credit losses 40,105 63,231 Write-offs, net of recoveries (2) ( 48,337 ) ( 41,713 ) Ending balance $ 60,110 $ 64,478 ________________ (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 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. 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 Allowance for credit losses ( 1,530 ) ( 4,366 ) Retail installment contract receivables, net $ 280,830 $ 141,591 Classification: Accounts receivable, net $ 84,665 $ 47,023 Other assets 196,165 94,568 Retail installment contract receivables, net $ 280,830 $ 141,591 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 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. 14 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 Allowance for credit losses ( 16,919 ) ( 29,558 ) Contract assets, net $ 108,469 $ 132,005 Classification: Prepaid expenses and other current assets $ 61,818 $ 59,382 Other assets 46,651 72,623 Contract assets, net $ 108,469 $ 132,005 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. 3. Leases Company as Lessor 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. 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 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 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. 15 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 Operating Non-current Other assets 122,088 138,408 Finance Non-current Property and equipment, net (1) 69,507 54,414 Total right-of-use assets $ 191,900 $ 193,506 Operating Current Accrued expenses and other current liabilities $ 33,085 $ 30,689 Finance Current Current maturities of long-term debt 35,437 26,955 Operating Non-current Other liabilities 99,474 115,694 Finance Non-current Long-term debt 39,049 34,373 Total lease liabilities $ 207,045 $ 207,711 _________________ (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 Finance lease cost: Amortization of right-of-use assets 7,481 6,703 20,659 18,897 Interest on lease liabilities 707 778 2,083 2,393 Variable lease costs 20,448 10,803 53,580 34,952 Total lease cost $ 40,054 $ 32,623 $ 112,792 $ 99,493 The following table presents cash flow and supplemental information associated with the Company’s leases: Nine Months Ended September 30, ( in thousands ) 2021 2020 Cash paid for amounts included in the measurement of lease liabilities: 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: Operating lease liabilities $ 14,999 $ 40,015 Finance lease liabilities $ 36,465 $ 10,147 4. Acquisitions 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 nine months ended September 30, 2020, other acquisitions were not material. 16 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. 5. Goodwill and Other Intangible Assets Goodwill 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. (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. 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 Beginning balance, after change in reportable segments $ 4,915,857 $ 320,445 $ 5,236,302 Acquisitions — 6,763 6,763 Other ( 25 ) 1,902 1,877 Ending balance $ 4,915,832 $ 329,110 $ 5,244,942 _________________ N/A—Not applicable. 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. 17 Other Intangible Assets Other intangible assets reflected in the Condensed Consolidated Balance Sheets consisted of the following: September 30, 2021 December 31, 2020 (in thousands) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Definite-lived intangible assets: Contracts and related customer relationships $ 8,550,352 $ ( 5,469,404 ) $ 3,080,948 $ 8,306,746 $ ( 4,932,590 ) $ 3,374,156 Dealer relationships 1,518,020 ( 439,326 ) 1,078,694 1,518,020 ( 379,475 ) 1,138,545 Other 226,358 ( 198,253 ) 28,105 247,536 ( 186,547 ) 60,989 Total definite-lived intangible assets 10,294,730 ( 6,106,983 ) 4,187,747 10,072,302 ( 5,498,612 ) 4,573,690 Indefinite-lived intangible assets: Trade name 1,333,000 — 1,333,000 1,333,000 — 1,333,000 Intangible assets $ 11,627,730 $ ( 6,106,983 ) $ 5,520,747 $ 11,405,302 $ ( 5,498,612 ) $ 5,906,690 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 Acquisition of customer relationships 5,333 Customer contract additions, net of dealer charge-backs (1) 527,306 Amortization ( 825,847 ) Ending balance $ 3,080,948 ________________ (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 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. 18 6. Debt 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. LIBOR +2.75% Quarterly $ 2,765,006 $ 2,778,900 Second Lien Notes due 2028 1/28/2020 1/15/2028 6.250 % 1/15 and 7/15 1,300,000 1,300,000 First Lien Notes due 2024 4/4/2019 4/15/2024 5.250 % 2/15 and 8/15 750,000 750,000 First Lien Notes due 2026 4/4/2019 4/15/2026 5.750 % 3/15 and 9/15 1,350,000 1,350,000 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 ADT Notes due 2023 1/14/2013 6/15/2023 4.125 % 6/15 and 12/15 700,000 700,000 ADT Notes due 2032 5/2/2016 7/15/2032 4.875 % 1/15 and 7/15 728,016 728,016 ADT Notes due 2042 7/5/2012 7/15/2042 4.875 % 1/15 and 7/15 21,896 21,896 Receivables Facility 3/5/2020 8/20/2026 LIBOR +0.85% Monthly 165,482 75,775 Plus: Finance lease obligations (1) 74,486 61,328 Less: Unamortized debt discount, net ( 17,499 ) ( 19,993 ) Less: Unamortized deferred financing costs ( 67,225 ) ( 64,638 ) Less: Unamortized purchase accounting fair value adjustment and other ( 160,463 ) ( 188,740 ) Total debt 9,609,699 9,492,544 Less: Current maturities of long-term debt ( 101,358 ) ( 44,764 ) Long-term debt $ 9,508,341 $ 9,447,780 _________________ (1) Refer to Note 3 “Leases” for additional information regarding the Company’s finance leases. Significant changes in the Company’s debt during the nine months ended September 30, 2021 were as follows: First Lien Credit Agreement The Company’s first lien credit agreement, dated as of July 1, 2015 (together with subsequent amendments and restatements, the “First Lien Credit Agreement”), contains a first lien term loan facility (the “First Lien Term Loan due 2026”) and a first lien revolving credit facility (the “First Lien Revolving Credit Facility”). In January 2021, the Company amended and restated its First Lien Credit Agreement to refinance the First Lien Term Loan due 2026, which reduced the applicable margin for Adjusted London Interbank Offered Rate (“LIBOR”) loans from 3.25 % to 2.75 % and reduced the LIBOR floor from 1.00 % to 0.75 %. 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 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: 19 • 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 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. 20 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. 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 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 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. 7. Derivative Financial Instruments The Company's derivative financial instruments primarily consist of LIBOR-based interest rate swap contracts, which were entered into with the objective of managing exposure to variability in interest rates on the Company's debt. All interest rate swap contracts are reported in the Condensed Consolidated Balance Sheets at fair value. 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 (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-insignificant financing element at inception are reflected as cash flows from financing activities in the Condensed Consolidated Statements of Cash Flows. 21 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 January 2019 April 2022 Not designated $ 125,000 February 2019 April 2022 Not designated 300,000 October 2019 September 2026 Not designated 2,800,000 Total notional amount $ 3,225,000 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 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 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 Other liabilities 99,600 210,378 Fair value of interest rate swaps $ 160,751 $ 275,840 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. 8. Equity 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. The holders of Class B Common Stock have one vote for each share of Class B Common Stock held on all matters on which stockholders are entitled to vote generally except for voting on the election, appointment, or removal of directors of the Company. Additionally, each share of Class B Common Stock will immediately become convertible into one share of Common Stock, at the option of the holder, subject to certain timing and restrictions. 22 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 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 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 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 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 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. 23 9. Share-based Compensation 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 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’ 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. 10. 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. 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 issued in connection with a business combination. 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. 24 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, 2021 2020 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, 2021 2020 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 ) 11. Income Taxes 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 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 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. 25 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 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. The Company also recognized a benefit from an increase in the interest expense limitation from 30% to 50% for tax years 2019 and 2020. In connection with the 2021 Rescue Act, the Company noted risks of an unfavorable impact to the Company’s future results of operations and cash flows due to revised Internal Revenue Code Section 162(m) limits on the deduction for executive compensation, effective in tax years after 2026. During 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. In addition, states have begun proposing and enacting legislation to address the unfavorable financial impacts of the COVID-19 Pandemic, which includes tax rate changes, decoupling from favorable federal legislation under the CARES Act (such as an increased interest expense limitation from 30% to 50%), and limiting the use of net operating losses. The Company expects the trend to continue through the remainder of 2021, and these changes could have material impacts to the Company’s results of operations and cash flows. The Company will continue to assess the impacts as states finalize and enact these legislative changes. 12. Commitments and Contingencies Contractual Obligations 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 The Company is subject to various claims and lawsuits in the ordinary course of business, which include contractual disputes; worker’s compensation; employment matters; product, general, and auto liability claims; claims that the Company has infringed on the intellectual property rights of others; claims related to alleged security system failures; and consumer and employment class actions. The Company is also subject to regulatory and governmental examinations, information requests and subpoenas, inquiries, investigations, and threatened legal actions and proceedings. In connection with such formal and informal inquiries, the Company receives numerous requests, subpoenas, and orders for documents, testimony, and information in connection with various aspects of its activities. The Company records accruals for losses that are probable and reasonably estimable. These accruals are based on a variety of factors such as judgment, probability of loss, opinions of internal and external legal counsel, and actuarially determined estimates of claims incurred but not yet reported based upon historical claims experience. Legal costs in connection with claims and lawsuits in the ordinary course of business are expensed as incurred. Additionally, the Company records insurance recovery 26 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 $ 94 million and $ 89 million as of September 30, 2021 and December 31, 2020, respectively. Environmental Matters In October 2013, the Company was notified by subpoena that the Office of the Attorney General of California, in conjunction with the Alameda County District Attorney, is investigating whether the Company’s electronic waste disposal policies, procedures, and practices are in violation of the California Business and Professions Code and the California Health and Safety Code. During 2016, Protection One, Inc. was also notified by the same parties that it was subject to a similar investigation. The investigations have been inactive since December 2016 other than a status conference conducted in May 2019. The Company is coordinating joint handling of both investigations and continues to fully cooperate with the respective authorities. Los Angeles Alarm Permit Class Action In June 2013, the Company was served with a class action complaint in California State Court entitled Villegas v. ADT . In this complaint, the plaintiff asserted that the Company violated certain provisions of the California Alarm Act and the Los Angeles Municipal Alarm Ordinance for its alleged failures to obtain alarm permits for its Los Angeles customers and disclose the alarm permit fee in its customer contracts. The plaintiff seeks to recover damages for putative class members who were required to pay enhanced false alarm fines as a result of the Company not obtaining a valid alarm permit at the time of alarm system installation. The case was initially dismissed by the trial court and judgment was entered in the Company’s favor in October 2014, which the plaintiff appealed. In September 2016, the California Appellate Court reversed and remanded the case back to the trial court. 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. The settlement received preliminary approval from the court in February 2021 and final approval in August 2021. Wage and Hour Class Action In January 2020, the Company acquired Defenders, which is defending against litigation brought by Teddy Archer and seven other security advisors who claim unpaid overtime under the Fair Labor Standards Act (the “FLSA”), breach of contract under state law in all states, and a violation of state wage-hour laws in California, New Jersey, New York, and Washington. The lawsuit was originally filed in March 2018 in the United States District Court for the District of Delaware. During 2018, the court conditionally certified the case as an FLSA collective action. The plaintiffs seek to represent a nationwide class for unpaid wages. The parties are actively engaged in discovery. Unauthorized Access by a Former Technician In April 2020, after investigating a customer inquiry, the Company self-disclosed that a former technician based in Dallas, Texas had, during service visits, added his personal email address to approximately 200 of the Company’s customers’ accounts, which provided this employee with varying levels of unauthorized personal access to such customers’ in-home security systems. In response, the Company initiated an affirmative outreach effort to notify all customers affected by this activity and to address their concerns. Since the disclosure, six lawsuits have been filed against the Company, and the Company intervened in a seventh lawsuit filed against the former technician. Four of these lawsuits are putative class actions and three are individual claims. 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. ADT LLC and filed in the U.S. District Court for the Southern District of Florida. By an amended complaint, the plaintiff asserts causes of action on behalf of herself and other Company customers similarly situated, and seeks to recover damages for breach of contract, negligence, intrusion upon seclusion, violation of the Computer Fraud and Abuse Act, negligent hiring, supervision and retention, and intentional infliction of emotional distress. The Company moved to dismiss the plaintiff’s amended complaint. In December 2020, the federal district court dismissed the causes of action for intrusion upon seclusion and violation of the Computer Fraud and Abuse Act, and further ruled that plaintiff may not seek to hold the Company vicariously liable for any intentional torts committed by the former technician. The Company’s motion was denied on plaintiff’s other claims. In 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. 27 In June 2020, the Company was served with a class action complaint in a case captioned Alexia Preddy v. ADT LLC and filed in the U.S. District Court for the Southern District of Florida. By an amended complaint, the plaintiff asserts causes of action on behalf of herself and others similarly situated as individuals residing in homes of Company customers, and seeks to recover damages for negligence, intrusion upon seclusion, violation of the Computer Fraud and Abuse Act, negligent hiring, supervision and retention, and intentional infliction of emotional distress. The Company moved to dismiss the plaintiff’s amended complaint and to compel arbitration. In December 2020, the federal district court granted the Company’s motion to compel arbitration. The case is stayed and administratively closed pending arbitration. In April 2021, the Company accepted service of a new class action complaint filed in the U.S. District Court for the Southern District of Florida on behalf of Randy Doty, the husband of the plaintiff in Shana Doty v. ADT LLC. The claims alleged in the new complaint are substantially similar to the claims asserted in Alexa Preddy v. ADT LLC, the case which has been stayed pending arbitration. 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 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. The Company may also be subject to future legal claims. 13. Segment Information Effective in the first quarter of 2021, the manner in which the Company’s Chief Executive Officer, who is the CODM, evaluates performance and makes decisions about how to allocate resources changed. Therefore, the Company now reports results in two operating and reportable segments, CSB and Commercial, rather than a single operating and reportable segment. Refer to Note 1 “Description of Business and Summary of Significant Accounting Policies,” for a description of the Company’s segments. Where applicable, prior periods have been retrospectively adjusted to reflect the new operating and reportable segment structure. The CODM uses Adjusted EBITDA, which is the segment profit measure, to evaluate segment performance. Adjusted EBITDA is defined as net income or loss adjusted for (i) interest; (ii) taxes; (iii) depreciation and amortization, including depreciation of subscriber system assets and other fixed assets and amortization of dealer and other intangible assets; (iv) amortization of deferred costs and deferred revenue associated with subscriber acquisitions; (v) share-based compensation expense; (vi) merger, restructuring, integration, and other; (vii) losses on extinguishment of debt; (viii) radio conversion costs, net; 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; therefore, such information is not presented. The following table presents total revenue by segment and a reconciliation to consolidated total revenue: 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 Commercial 281,402 238,536 829,271 726,322 Total Revenue $ 1,317,002 $ 1,298,924 $ 3,926,123 $ 4,000,063 28 The following table presents Adjusted EBITDA by segment and a reconciliation to consolidated net loss before taxes: Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2021 2020 2021 2020 Adjusted EBITDA by segment: CSB $ 528,680 $ 548,965 $ 1,558,055 $ 1,636,726 Commercial 25,630 14,844 80,251 29,682 Total $ 554,310 $ 563,809 $ 1,638,306 $ 1,666,408 Reconciliation to consolidated net loss before taxes: Total segment Adjusted EBITDA $ 554,310 $ 563,809 $ 1,638,306 $ 1,666,408 Less: Interest expense, net 133,275 156,759 347,524 569,391 Depreciation and intangible asset amortization 480,010 473,346 1,424,090 1,440,239 Amortization of deferred subscriber acquisition costs 32,534 24,810 91,364 70,226 Amortization of deferred subscriber acquisition revenue ( 45,020 ) ( 31,329 ) ( 122,908 ) ( 90,346 ) Share-based compensation expense 16,242 26,431 45,848 74,758 Merger, restructuring, integration, and other ( 6,723 ) ( 6,117 ) 18,588 114,715 Loss on extinguishment of debt 36,957 48,916 37,113 114,759 Radio conversion costs, net (1) 52,295 12,641 171,659 24,311 Other 365 ( 851 ) ( 19 ) 1,981 Net loss before taxes $ ( 145,625 ) $ ( 140,797 ) $ ( 374,953 ) $ ( 653,626 ) ___________________ (1) Refer to Note 1 “Description of Business and Summary of Significant Accounting Policies” for further details. 14. Related Party Transactions The Company’s related party transactions primarily relate to management, consulting, and transaction advisory services provided by Apollo, as well as monitoring and related services provided to or products and services received from other entities controlled by Apollo. There were no significant related party transactions for the three or nine months ended September 30, 2021 and 2020. 29