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Item 1. Business

2022-03-01 compared with 2021-02-25 · 311 added, 238 removed, 76 unchanged (88% of the section changed)

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

Our mission is to help our customers protect and connect to what matters most—their families, homes, and businesses.

We offer many ways to help protect and connect customers by providing 24/7 professional monitoring services as well as delivering lifestyle-driven solutions through professionally installed (“do-it-for-me” or “DIFM”), do-it-yourself (“DIY”), mobile, and digital-based offerings for residential, small business, and large commercial customers.

The ADT brand is synonymous with monitored security and, as one of the most recognized and trusted brands in the security systems industry, is a key driver of our success.

As of December 31, 2020, we served approximately 6.5 million recurring revenue customers through more than 300 locations, nine monitoring centers, and the largest network of security and home automation professionals in the U.S.

Our Formation and Business Developments

Company Overview

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

With the acquisition of Sunpro Solar in December 2021, we are now also a leading provider of residential solar solutions.

Our mission is to empower customers to protect and connect to what matters most - their families, homes, and businesses - by delivering safe, smart, and sustainable lifestyle-driven solutions through professionally installed, do-it-yourself (“DIY”), and mobile or other digital-based offerings supported by our 24/7 professional monitoring services.

The ADT brand is one of the most recognized and trusted brands in the security industry, which we believe is a key competitive advantage and contributor to our success due to the importance customers place on reputation and trust when purchasing our products and services.

The strength of our brand is based upon a long-standing record of delivering high-quality, reliable products and services;

expertise in system sales, installation, and monitoring;

and superior customer care, all driven by our industry-leading experience and knowledge.

We serve our customers through our nationwide sales and service offices;

monitoring and support centers;

and a large network of security, home-automation, and solar-installation professionals in the U.S.

As of December 31, 2021, we had approximately 6.6 million recurring revenue customers.

Formation and Organization

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

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(collectively, the “Formation Transactions”), which were instrumental in the commencement of our operations.

In May 2016, we acquired The ADT Security Corporation (formerly named The ADT Corporation) (“The ADT Corporation”) (the “ADT Acquisition”).

The ADT Acquisition significantly increased our market share in the security systems industry making us one of the largest monitored security companies in the U.S.

and Canada at the time.

The following represents key business developments in recent years:

• In January 2018, we completed an initial public offering (“IPO”) and our common stock, par value $0.01 per share, (“Common Stock”) began trading on the New York Stock Exchange (“NYSE”) under the symbol “ADT.”

In May 2016, we acquired The ADT Security Corporation (formerly named The ADT Corporation) (“The ADT Corporation”) (the “ADT Acquisition”), which significantly increased our market share in the security systems industry making us one of the largest monitored security companies in the U.S.

and, at the time, Canada.

In January 2018, we completed an initial public offering (“IPO”), and our common stock, par value $0.01 per share, (“Common Stock”) began trading on the NYSE under the symbol “ADT.”

is majority-owned by Prime Security Services TopCo (ML), L.P., which 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.

As of December 31, 2021, Apollo owned approximately 67.5% of our outstanding common stock, including Class B Common Stock (as defined below) on an as-converted basis, and excluding unvested common shares.

Key Business Developments and Recent Initiatives

The following represents key business developments since our IPO:

• In December 2018, we acquired Fire & Security Holdings, LLC (“Red Hawk”) (the “Red Hawk Acquisition”), which accelerated our growth in the commercial security market and expanded our product portfolio with the introduction of commercial fire safety and related solutions.

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(“ADT Canada”), which resulted in the substantial disposition of our operations in Canada.

• In January 2020, we acquired our largest independent dealer, Defender Holdings, Inc.

(“Defenders”) (the “Defenders Acquisition”).

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

• In July 2020, we entered into a Master Supply, Distribution, and Marketing Agreement (the “Commercial Agreement”) with Google LLC (“Google”) and in September 2020, we issued and sold 54,744,525 shares of Class B common stock, par value $0.01 per share, (“Class B Common Stock”) in a private placement to Google.

The partnership with Google is anticipated to drive our next phase of growth for our DIFM and DIY solutions beginning in 2021.

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

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”).

As of December 31, 2020, Apollo owned approximately 74.6% of our outstanding common stock, including Class B Common Stock on an as-converted basis and excluding unvested common shares, compared to 87.7% as of December 31, 2019.

Information about Segment and Geographic Revenue

We report results based on a single operating and reportable segment.

However, we expect the manner in which the chief operating decision maker (the “CODM”) evaluates results to change during the first quarter of 2021, and as a result, we anticipate a change in our operating and reportable segment structure.

For the results of our operations outside of the U.S., which consist of our operations in Canada prior to the sale of ADT Canada, refer to Note 15 “Geographic Data” in the Notes to Consolidated Financial Statements.

Our Products and Services

We primarily offer our portfolio of products and services under our ADT brand, which is among the most recognized and trusted brands in the security systems industry.

The strength of our brand is built upon a long-standing record of providing high-quality and reliable monitored security and automation services, expertise in system sales and installation, superior customer care, and industry-leading experience and knowledge.

Our interactive offerings add automation and smart home capabilities to traditional security systems.

We also seek opportunities that allow us to leverage our brand, our focus on security, and our trust among our customer base to expand our service offerings to help our customers protect and connect to what matters most.

Due to the importance that customers place on reputation and trust when purchasing security and automation services and systems, we believe the strength of our brand is a key competitive advantage and contributor to our success.

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

• In January 2020, we acquired Defender Holdings, Inc.

(“Defenders”), our largest independent dealer at the time (the “Defenders Acquisition”), which represented approximately 55% of our indirect channel in 2019.

• In February 2020, we launched a new revenue model initiative for certain residential customers, which (i) revised the amount and nature of fees due at installation, (ii) introduced a 60-month monitoring contract option, and (iii) introduced a new retail installment contract option.

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

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

• In July 2021, we introduced the concept of Virtual Service Support, which allows us to meet customer demands and preferences while reducing costs of truck rolls for certain service visits.

Virtual Service Support delivers a scalable, cost-efficient means of servicing our customers through live video streaming with our skilled technicians to troubleshoot and resolve service issues.

• In December 2021, we acquired Sunpro Solar, which entered us into the residential solar market with the launch of ADT Solar, which will leverage ADT’s brand awareness and trust among consumers to accelerate growth.

ADT Solar provides residential customers with solar and energy storage solutions, energy efficiency upgrades, and roofing services.

• In January 2022, we announced that together with Ford Motor Company (“Ford”), we will be forming a new entity, Canopy, which will combine ADT’s professional security monitoring and Ford’s AI-driven video camera technology to help customers strengthen security of new and existing vehicles across automotive brands.

Ford and ADT’s investment in Canopy is subject to certain conditions, including regulatory approvals, and initial funding is expected to close in the second quarter of 2022.

ADT and Ford expect to invest approximately $100 million collectively during the next three years, of which ADT will contribute 40%.

• In January 2022, we successfully launched the integrated Google doorbell, and we are jointly solidifying the timeline for subsequent product launches with a focus on optimal customer experience and quality.

Google and Next-Generation Platform Update

Our partnership with Google represents the combination of the leading security brand and the leading technology brand joining forces to introduce the next-generation smart and helpful home.

As part of this partnership, each company will contribute $150 million upon the achievement of certain milestones towards the joint marketing of devices and services;

customer acquisition;

training of our employees for the sales, installation, customer service, and maintenance for the product and service offerings;

and technology updates for products included in such offerings.

Co-branded offerings are and will continue to be available in the form of both professionally installed and DIY solutions and will include the integration of leading Google devices paired with Google video and analytics services initially through our current technology platform and the Google Home platform.

We plan to transition these offerings to be supported by our ADT-owned next-generation professional security and automation technology platform, which is currently being developed in coordination with Google.

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

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

COVID-19 Pandemic Update

The COVID-19 Pandemic, including variants such as Delta and Omicron, caused certain notable adverse impacts on general economic conditions, including temporary and permanent closures of many businesses, increased governmental regulations, supply chain disruptions, and changes in consumer spending.

Our employees are susceptible to COVID-19 in the ordinary course of their work.

In order to continue to both protect our employees and serve our customers, we have adjusted, and are continuously evolving, certain aspects of our operations in response to the COVID-19 Pandemic, which include (i) detailed protocols for infectious disease safety for employees, (ii) employee daily wellness checks, (iii) certain work from home actions, including for the majority of our call center professionals, and (iv) investments in personal protective equipment for our employees.

We continue to monitor the impact of the COVID-19 Pandemic including the health of our employees, protection of our customers, and our ability to continue to operate all aspects of our business.

Segment and Geographic Information

We evaluate and report our segment information based on the manner in which our Chief Executive Officer, who is the chief operating decision maker (the “CODM”), evaluates performance and allocates resources.

Prior to 2021, we had a single operating and reportable segment.

Beginning in the first quarter of 2021, we reported results in two operating and reportable segments, Consumer and Small Business (“CSB”) and Commercial.

Upon consummation of the Sunpro Solar Acquisition in the fourth quarter of 2021, we began reporting results for a third operating and reportable segment related to the ADT Solar business (“Solar”).

There were no further changes to our CSB and Commercial segments.

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

We organize our segments based primarily on customer type as follows:

• CSB - The CSB segment primarily includes (i) revenue and operating costs from the sale, installation, servicing, and monitoring of integrated security, interactive, 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 or Solar segments.

Customers in the CSB segment are comprised of residential homeowners, small business operators, and other individual consumers of security and automation systems.

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 - The Commercial segment primarily includes (i) revenue and operating costs from the sale, installation, servicing, and monitoring of integrated security, interactive, 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.

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

• Solar - The Solar segment primarily includes (i) revenue and operating costs from the design and installation of solar systems, energy storage solutions, and other related solutions and services;

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

and (iii) dedicated corporate and other costs.

Customers in the Solar segment are primarily comprised of residential homeowners who purchase solar systems and energy storage solutions, energy efficiency upgrades, and roofing services.

For the results of our operations outside of the U.S., which consist of our operations in Canada prior to the sale of ADT Canada, refer to Note 3 “Segment Information” in the Notes to Consolidated Financial Statements.

Products and Services

We primarily offer our portfolio of products and services under our ADT brand, which includes burglar alarm, security automation, and other smart home solutions and fire detection, suppression, and access control systems (referred to collectively as security systems, solutions, or offerings), as well as solar systems and energy storage solutions for residential customers.

Our core security offerings are designed to detect intrusion;

control access;

sense movement, smoke, fire, carbon monoxide, flooding, temperature, and other environmental conditions and hazards;

and address personal emergencies such as injuries, medical emergencies, or incapacitation.

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

Our monitoring center personnel respond to alarms by relaying appropriate information to first responders, such as local police, fire departments, or medical emergency response centers;

and address personal medical emergencies such as injuries or incapacitation.

In our Commercial business, we also sell, install, integrate, maintain, and inspect commercial building safety and management technologies, which include fire detection and suppression, video surveillance, and access control systems.

We also offer our customers routine maintenance and the installation of upgraded or additional equipment, which provides additional value to the customer and generates incremental recurring monthly revenue.

With the acquisition of Sunpro Solar, we design, install, and sell custom solar systems and energy storage solutions, energy efficiency upgrades, and roofing services.

The vast majority of new residential customers choose our automation and smart home solutions, which provide customers the ability to remotely monitor and manage their environments.

Through our customized web portal via web-enabled devices (such as smart phones), customers can arm/disarm their security systems, record/view real-time video, and program their systems to react to defined events, as well as automate custom schedules for connected devices such as lights, thermostats, appliances, garage doors, and cameras.

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

Additionally, our personal emergency response system products

and services utilize our security monitoring infrastructure to provide customers with solutions helping to sustain independent living and encourage better self-care activities.

Our recently acquired solar operations, now ADT Solar, combines our legacy leading smart home security with sustainable home energy management solutions through a single, trusted provider.

ADT Solar offers customers solar solutions through dedicated and specialized in-house sales and marketing teams, design and engineering, and installation.

Customer Contracts

New CSB and certain Commercial customers typically require us to make an upfront investment related to installation costs (such as labor, including commissions, materials, and overhead), which are partially offset by upfront fees charged at the time of installation.

The economics of an installation can vary depending on the customer acquisition channel and product, but we generally achieve revenue break-even in less than two and a half years.

We periodically adjust the standard monthly monitoring rate charged to new and existing customers, while our ability to increase our average selling prices for individual customers depends on a number of factors, including the quality of our service, the introduction of additional features and services which increase the value of our offerings, and the competitive environment in which we operate.

At the time of initial equipment installation, our CSB and Commercial customers typically contract for both monitoring and maintenance services, which are generally governed by multi-year contracts.

If a customer cancels or is otherwise in default under a monitoring contract prior to the end of the initial contract term, we have the right under the contract to receive a termination payment from the customer in an amount equal to a designated percentage of all remaining monthly payments.

The standard contract terms for CSB customers are two, three, or five years, with automatic renewals for successive 30-day periods, unless canceled by either party.

Residential customers are typically charged an upfront fee, which qualifying customers can pay over the course of the contract, and are then obligated to make monthly payments for the remainder of the initial contract term.

Monitoring services are generally billed monthly or quarterly in advance, and more than 80% of our residential customers pay us these fees through automated payment methods, with new residential customers generally opting for these payment methods.

The standard contract term for commercial customers is typically five years with automatic renewals ranging from 30-day periods to one year.

In some commercial arrangements, we may install a system without an on-going contractual monitoring or maintenance service relationship.

The standard contract for solar customers varies based on specifics of the job and generally covers the time from signing of the agreement to completion of installation.

Additionally, a substantial portion of sales are financed by third parties.

Monitoring Centers

Upon the occurrence of certain initiating events, our monitored security systems send event-specific signals to personnel at our monitoring centers who then relay appropriate information to first responders, such as local police, fire departments, or medical emergency response centers;

the customer;

or others on the customer’s emergency contact list according to the type of service contract and customer preference.

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

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

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

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

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

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

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

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

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

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

A portion of our customers use traditional land-line telephone service as the primary communication method for alarm signals to our central monitoring centers.

As the use of land-line telephone service has decreased, we have implemented cellular and broadband technologies as communication methods for alarm signals, which facilitate our interactive and smart home offerings.

In addition to our sale, installation, and monitoring services, we provide our customers with other services such as routine maintenance and the installation of upgraded or additional equipment.

Our customers may contract for both monitoring and maintenance services at the time of initial equipment installation, which provides additional value to the customer and generates incremental recurring monthly revenue.

In certain markets, we also sell, install, integrate, maintain, and inspect commercial building safety and management technologies, which include fire detection, fire suppression, video surveillance, and access control systems.

In some cases for commercial customers, we may engage in arrangements that include system installation without an on-going contractual monitoring or maintenance service relationship.

Our monitoring and maintenance services provided to our customers are generally governed by multi-year contracts with automatic renewal provisions providing us with recurring monthly revenue.

Under our typical residential customer contract, the customer is charged an upfront fee, which qualifying customers can pay over the course of the contract, and is then obligated to make monthly payments for the remainder of the initial contract term.

The standard contract term for residential customers is two, three, or five years, with automatic renewals for successive 30-day periods, unless canceled by either party.

The standard contract term for commercial customers is typically five years with various automatic renewals with terms ranging from 30-day periods to one year.

If a customer cancels or is otherwise in default under the contract prior to the end of the initial contract term, we have the right under the contract to receive a termination payment from the customer in an amount equal to a designated percentage of all remaining monthly payments.

Monitoring services are generally billed monthly or quarterly in advance.

More than 70% of our residential customers pay us through automated payment methods, with new residential customers generally opting for these payment methods.

We periodically adjust the standard monthly monitoring rate charged to new and existing customers.

New customers for monitored security and automation services typically require us to make an upfront investment related to installation costs associated with labor, materials, and overhead, which are partially offset by fees received in connection with the initiation of a monitoring contract.

While the economics of our installations can vary depending on the customer acquisition channel and type of system, we operate our business with the goal of retaining customers for sufficiently long periods of time in order to recoup our initial investment in new customers, generally achieving revenue break-even in less than two and a half years.

or others on the customer’s emergency contact list based on the customer’s contract and preferences.

We continue to focus on our alarm verification technologies and partner with industry associations and various first responder agencies to help prioritize response events, enhance response policies, and develop processes that allow us to send data to emergency response centers directly.

Additionally, our SMART (System Monitoring and Response Technology) Monitoring differentiates our offerings, aims to result in faster and higher-quality responses, and is expected to reduce annual false alarms and customer care calls.

As of December 31, 2021, we operated nine monitoring centers listed by Underwriters Laboratories (“UL”) located throughout the U.S.

in order to provide 24/7 year-round professional monitoring services to our customers, with three of our monitoring centers also providing outsourced monitoring services for other security companies.

To obtain and maintain a UL listing, a security systems monitoring center must be located in a building meeting UL’s structural requirements, have back-up computer and power systems, and meet UL specifications for staffing and standard operating procedures.

Many jurisdictions have laws requiring that security systems for certain buildings be monitored by UL-listed centers.

In addition, a UL listing is required by insurers of certain customers as a condition of insurance coverage.

Our monitoring centers are also fully redundant, which means all monitoring operations can be automatically transferred to another monitoring center in case of an emergency such as fire, tornado, major interruption in telephone or computer service, or any other event affecting the functionality of one of our centers.

During 2020, we implemented certain work from home actions as a result of the COVID-19 Pandemic, including for a majority of our monitoring center professionals in compliance with UL work-from-home standards.

In addition to our monitoring centers, our Network Operations Center (“NOC”) houses a group of highly-experienced, certified engineers, system administrators, and network analysts capable of designing, provisioning, and maintaining security-only networks for our Commercial customers.

The NOC also provides other managed services to support and enhance our customer’s security systems.

Employees in our NOC hold a multitude of vendor certifications in addition to classic Cisco and

Cisco Meraki Certifications.

Our NOC was one of the first security integrators to earn the Cisco Cloud and Managed Services Express Partner Certification and remains one of the few in our industry to hold this specialized certification.

Field Service and Call Centers Operations

We staff our sales and service offices across the U.S.

with qualified individuals who make sales calls, install security systems, and provide service and support to our customers, and we utilize third-party subcontract labor when appropriate to assist with these efforts.

Our objective is to provide a differentiated service experience by resolving customer issues remotely whenever possible and scheduling service visits at times convenient for the customer.

Additionally, we implemented Virtual Service Support in July 2021, which enables our technicians to live-video stream with certain customers to satisfy customer demand for service while reducing some of the costs of in-home visits.

Our call center operations provide support 24 hours a day on a year-round basis, and all requests are routed through our customer contact centers to ensure technical service requests are handled promptly and professionally.

In many cases, customer care specialists can remotely resolve non-emergency inquiries regarding service, billing, and alarm testing and support.

We continue to offer customers additional choices in managing their services through customer-facing self-service tools via interactive voice response systems and the Internet.

We believe a strong selling point for multi-site customers is our ability to serve our largest multi-site customers from our National Accounts Operation Center (“NAOC”) in Irving, Texas, which allows the customer to call one location to resolve all support issues, including billing, installations, service calls, upgrades, or other service-related issues.

We provide ongoing training to call center and field employees and our authorized dealers, and we continually measure and monitor customer satisfaction-oriented metrics across each customer touch point.

Sales and Distribution Channels

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• Direct Channel

Our direct channel customers are generated by our direct response and other marketing efforts and general brand awareness, customer referrals, and lead generation partners, and are supported by our internal sales force located in our four national sales call centers as well as our network of sales and service offices located throughout the U.S.

Our telephone sales consultants work to understand customer needs and then direct customers to the most suitable sales approach.

Our direct channel customers are generated by our direct response and other marketing efforts, general brand awareness, customer referrals, and lead generation partners, and are supported by our internal sales force located in our national sales call centers as well as our nationwide network of sales and service offices.

In many scenarios, we close the sale of a basic system over the phone and allow our field force to augment the system at the time of installation.

In other cases, we seek to schedule an appointment with a field sales consultant to work directly with the customer to select an ideal system.

Our field sales consultants undergo an in-depth screening process prior to hire.

Each field sales consultant completes comprehensive centralized training prior to conducting customer sales presentations and participates in ongoing training in support of new offerings and the use of our structured model sales call.

In other cases, field sales consultants work directly with the customer to select an ideal system.

Driven by consumer preferences, we also market to customers through retail and e-commerce channels, which are expected to grow in the next few years, and we have been supplementing existing channels to meet consumers where they prefer to shop.

Our security field sales consultants undergo an in-depth screening process prior to hire.

Each field sales consultant completes comprehensive centralized training prior to conducting customer sales presentations, as well as participates in ongoing training in support of new offerings and the use of our structured model sales call.

We utilize a highly structured sales approach, which includes, in addition to the structured model sales call, daily monitoring of sales activity and effectiveness metrics and regular coaching by our sales management teams.

In our solar business, we obtain sales primarily through third-party and self-generated leads, as well as through a referral app for our customers.

• Indirect Channel

Our indirect channel customers are generated mainly through our network of agreements with third-party independent alarm dealers who sell alarm equipment and ADT Authorized Dealer-branded monitoring and interactive services to residential end users (the “ADT Authorized Dealer Program”).

The ADT Authorized Dealer Program extends our reach by aligning us with select independent security sales and installation companies.

Our indirect channel customers are generated mainly through our network of agreements with third-party independent dealers who sell equipment and ADT Authorized Dealer-branded monitoring, interactive, and other services to residential end users (the “ADT Authorized Dealer Program”).

As opportunities arise, we have in the past engaged, and we may continue to engage, in selective bulk account purchases, which typically involve the purchase of a set of customer accounts from other security service providers.

As of December 31, 2021, our network of authorized dealers consisted of approximately 200 authorized dealers operating across the U.S.

Our authorized dealers are contractually obligated to offer exclusively to us all qualified monitored accounts they generate, but we are not obligated to accept these accounts.

We pay our authorized dealers for the acquisition of any qualified monitored accounts from them.

We pay our authorized dealers for the acquisition of any qualified monitored accounts (referred to as dealer generated customer accounts) we purchase from them.

In certain instances in which we reject an account, we generally still indirectly provide monitoring services for that account through a monitoring services agreement with the authorized dealer.

Dealer generated customer contracts typically have an initial term of three years with automatic renewals for successive 30-day periods, unless canceled by either party.

Dealer generated customer contracts typically have an initial term of three years with automatic renewals for successive 30-day periods, unless

canceled by either party.

If a purchased account is canceled during the charge-back period, which is generally thirteen months, the dealer is required to refund our payment of the purchase price for the canceled account.

As of December 31, 2020, our network of authorized dealers consisted of approximately 200 authorized dealers operating across the U.S.

We monitor each authorized dealer’s financial stability, use of sound and ethical business

practices, and delivery of reliable and consistent high-quality sales and installation methods.

Authorized dealers are required to adhere to the same high-quality standards for sales and installation as our own sales and service offices.

The Defenders Acquisition resulted in the acquisition of our largest independent dealer, which represented approximately 55% of our indirect channel for the year ended December 31, 2019.

Field Operations

As of December 31, 2020, we served our customer base from more than 300 sales and service offices located throughout the U.S.

We staff our network of sales and service offices with installation and service technicians to efficiently and effectively make sales calls, install systems, and provide service support based on customer needs and our evaluation of growth opportunities in each market.

We utilize third-party subcontract labor when appropriate to assist with these efforts.

We maintain the relevant and necessary licenses related to the provision of installation of security and related services in the jurisdictions in which we operate.

Our objective is to provide a differentiated service experience, including by providing same-day or next-day service to the majority of our customers.

Monitoring Centers and Support Services

As of December 31, 2020, we operated nine monitoring centers, which are listed by Underwriters Laboratories (“U.L.”), located throughout the U.S.

in order to provide professional monitoring services to our customers 24 hours a day on a year-round basis, of which three monitoring centers also provide outsourced monitoring services for other security companies.

To obtain and maintain a U.L.

listing, a security systems monitoring center must be located in a building meeting U.L.’s structural requirements, have back-up computer and power systems, and meet U.L.

specifications for staffing and standard operating procedures.

Many jurisdictions have laws requiring that security systems for certain buildings be monitored by U.L.-listed centers.

In addition, a U.L.

listing is required by insurers of certain customers as a condition of insurance coverage.

Our monitoring centers are fully redundant, which means that in the event of an emergency at one of our monitoring centers such as fire, tornado, major interruption in telephone or computer service, or any other event affecting the functionality of the center, all monitoring operations can be automatically transferred to another monitoring center.

Newark, Delaware is home to our Network Operations Center (“NOC”).

The NOC houses a group of highly experienced certified engineers capable of designing and provisioning broadband networks for our customers.

These employees are Cisco Certified and Meraki Certified, and our NOC earned the Cisco Cloud and Managed Services Express Partner Certification, which makes us one of the few security companies in the industry with this designation.

Customer Care

Our call center operations provide support 24 hours a day on a year-round basis.

Customer care specialists answer non-emergency inquiries regarding service, billing, and alarm testing and support, while our monitoring centers primarily handle inbound alarms and the dispatch of alarms to first responders.

To ensure technical service requests are handled promptly and professionally, all requests are routed through our customer contact centers.

Customer care specialists help customers resolve minor service and operating issues and, in many cases, the specialists can remotely resolve customer concerns.

We continue to implement new customer-facing self-service tools via interactive voice response systems and the Internet, thereby providing customers additional choices in managing their services.

We serve our largest multi-site customers from our National Accounts Operation Center (“NAOC”) in Irving, Texas.

Our multi-site customers call one location to resolve all support issues, including billing, installations, service calls, upgrades, or other service-related assistance.

We believe this concept is a strong selling point for multi-site customers choosing us for their security needs.

We believe the fastest and most profitable way to grow our company is by retaining the customers we already have.

To maintain our high standard of customer service, we provide ongoing training to call center and field employees and our authorized dealers.

We also continually measure and monitor key performance metrics that drive a high-value customer experience, including customer satisfaction-oriented metrics across each customer touch point.

We serve our customers in the following three markets:

Residential, Commercial, and Emerging.

• Residential:

Our residential market primarily consists of owners of single-family homes who have purchased monitored security and automation services.

The market is characterized by a large and homogeneous customer base with less complex system installations.

• Commercial:

Our commercial market includes retail businesses, food and beverage service providers, medical offices, financial institutions, and professional service providers, among others, and can range from smaller businesses to large single-site commercial facilities, as well as multi-site national companies.

We monitor each authorized dealer’s financial stability, use of sound and ethical business practices, and delivery of reliable and consistent high-quality sales and installation methods.

Marketing and Strategic Partnerships

We have been focusing on driving revenue through increased consumer awareness and preference;

enhancing consumer purchasing flexibility;

and refreshing, refining, modernizing, and customizing our go-to-market approach.

To support the growth of our customer base, improve brand awareness, and drive greater market penetration, we consider new customer channels and lead generation methods, explore opportunities to provide branded solutions, and form strategic partnerships and alliances with various third parties.

We strive to optimize our marketing spend through a lead modeling process, whereby we dynamically allocate spend based on lead flow and measured marketing channel effectiveness.

We market our offerings through national television, radio, and direct mail advertisements, as well as through Internet advertising, which includes national search engine marketing, email, online video, local search, and social media.

We also have several affinity partnerships with organizations that promote our services to their customer bases.

In addition, we market through social media influencers and celebrity spokespersons representing the ADT brand.

Our strategic partnerships and alliances include home builders, property management firms, homeowners’ associations, insurance companies, financial institutions, retailers, public utilities, and software service providers.

For example, we have existing partnerships with national leaders in home construction and ride sharing, and we believe there is a healthy pipeline of future partnership and alliance opportunities.

Our goal is to maximize customer lifetime value for both new and existing customers by (i) continuing to evaluate our pricing and product offerings;

(ii) managing costs and service strategies to provide enhanced value;

(iii) upgrading existing customers to our interactive services, internet protocol (“IP”) video solutions, or other upgraded solutions whenever possible;

and (iv) achieving long customer tenure.

We serve our customers in the following three primary markets:

Consumer and Small Business, Commercial, and Solar.

We also seek opportunities to leverage our brand name, our core focus on security, and our high degree of trust among our customer base to pursue new customers in complementary markets such as DIY offerings, smart home technologies, and personal on-the-go security and safety.

We have seen an increase in interest in smart home offerings and other mobile technology applications, which we believe is attributable to a variety of factors, including advancements in technology, younger generations of consumers, and shifts to de-urbanization.

We believe our strategic initiatives will help us satisfy consumer and commercial demands in light of these macro-level dynamics and position us for sustainable growth for years to come.

Consumer and Small Business

Our consumer and small business market primarily consists of owners of single-family homes or small businesses, renters, and other DIY customers.

The market is generally characterized by a large and homogeneous customer base with less complex system installations.

Many of our residential and small business customers are driven to purchase monitored security and automation services as a result of moving to a new location;

a perceived or actual increase in crime or life safety concerns in their neighborhood;

significant events such as the birth of a child or opening of a new business;

or incentives provided by insurance carriers, who may offer lower insurance premium rates if a security system is installed or may require that a system be installed as a condition of coverage.

Our commercial market ranges from large single-site commercial facilities to multi-site national companies.

The market is characterized by higher penetration rates, driven in part by fire and building codes and insurance requirements, and by a higher degree of complexity with respect to system installations.

Our emerging markets, which include new customer types and new offerings, present opportunities for us to leverage our brand name, our core focus on security, and our high degree of trust among our customer base to pursue complementary markets such as DIY offerings, smart home technologies, network and cybersecurity, and personal on-the-go security and safety.

We also leverage our security monitoring infrastructure to provide customers with solutions that help sustain independent living and encourage better self-care activities.

Customers and Marketing

As of December 31, 2020, we served approximately 6.5 million recurring revenue customers throughout the U.S.

We target new customers and manage our existing customer base to maximize customer lifetime value, which includes continually evaluating our product offerings, pricing, and service strategies;

managing our costs to provide enhanced service to customers;

upgrading existing customers to our interactive services, internet protocol (“IP”) video solutions, or other upgraded solutions;

and achieving long customer tenure.

Our ability to increase our average selling prices for individual customers is dependent on a number of factors including the quality of our service, the continued introduction of additional features and services that increase the value of our offerings to customers, and the competitive environment in which we operate.

Many of our residential customers are driven to purchase monitored security and automation services as a result of moving to a new residence, a perceived or actual increase in crime, life safety concerns in their neighborhood, or other significant life events, such as the birth of a child;

or incentives provided by their insurance carriers, who may offer lower insurance premium rates if a security system is installed or may require that a system be installed as a condition of coverage.

Reasons for purchasing monitored security and automation systems vary for our business customers.

Most business customers require a basic security system for insurance purposes, while certain commercial premises are required to install and maintain fire alarm and, in some cases, fire suppression systems to meet the requirements under applicable building codes and insurance policies.

Additionally, as IP video solutions have become more affordable and interactive, businesses view these solutions for applications beyond just security and leverage them for operational purposes as well, including employee safety, theft prevention, and inventory management.

To support the growth of our customer base and to improve awareness of our brand, we market our monitored security and automation services through national television, radio, and direct mail advertisements, as well as through Internet advertising, which includes national search engine marketing, email, online video, local search, and social media.

We continually work to optimize our marketing spend through a lead modeling process, whereby we dynamically allocate our marketing spend based on lead flow and measured marketing channel effectiveness.

In addition to traditional and digital marketing, we have several affinity partnerships with organizations that promote our services to their customer bases.

We also rely on marketing by social media influencers and celebrity spokespersons that represent the ADT brand to generate new customers.

We continually consider and evaluate new customer lead generation methods and channels to increase our customer base and drive greater market penetration.

We also explore opportunities to expand our market presence by providing branded solutions and partnering with various third parties, including home builders, property management firms, homeowners’ associations, insurance companies, financial institutions, retailers, public utilities, and software service providers.

Technology trends are creating significant change in our industry.

Most business customers require a basic security system for insurance purposes, and certain commercial premises are required to install and maintain fire alarm, and sometimes fire suppression, systems to meet the requirements under applicable building codes and insurance policies.

Additionally, businesses may also leverage our IP video solutions for operational purposes such as employee safety, theft prevention, and inventory management.

We have been focused on increasing our market share and penetration in the commercial market.

While we experienced significant growth in our commercial channel during 2019, our commercial growth was negatively impacted by the COVID-19

Pandemic during 2020 and 2021.

However, we saw improvements beginning in 2021 and believe we are poised to return to commercial growth organically and through opportunistic value-add acquisitions.

Our solar market consists primarily of residential property owners.

The market is highly fragmented, under-penetrated, and has a longer lag between sale/contract and installation than our residential security market.

With the shift in consumer preference toward clean energy, we believe there are numerous opportunities to increase market share within the solar industry.

Sales are typically financed by third party financing institutions, which reduces risk associated with collections.

Additionally, we believe there is a large cross-selling and bundling opportunity with our CSB markets as consumers adopt smart home automation.

Success in acquiring new customers depends on a variety of factors, including (i) brand and reputation, (ii) market visibility, (iii) service and product capabilities, (iv) quality, (v) price, and (vi) the ability to identify and sell to prospective customers.

Technology trends are also creating significant change in our industries.

While providing us with many opportunities, innovation has also lowered the barriers to entry for automation, interactive, and smart home solutions, and new business models and competitors have emerged.

We believe a combination of increasing customer interest in lifestyle and business productivity and technology advancements will support the increasing penetration of automation, interactive, and smart home solutions.

We are focused on extending our leadership position in the traditional residential and commercial markets while also growing our share of the expanding emerging markets.

The traditional residential and commercial markets in the U.S.

remain highly competitive and fragmented, with a number of major firms and thousands of smaller regional and local companies.

The high fragmentation of the markets is primarily the result of relatively low barriers to entering the business in local geographies and the availability of companies providing outsourced monitoring services but not maintaining the customer relationship.

We believe our principal competitors within the traditional residential market are Vivint Smart Home, Inc., Brinks Home Security (operating brand of Monitronics International, Inc.), and Xfinity Home Security (a division of Comcast Corporation).

Our principal competitors within the

commercial market are Johnson Controls International plc.

(“Johnson Controls”), Convergint Technologies, Stanley Security (a division of Stanley Black and Decker), and Securitas Electronic Security.

Additionally, with our recent investments and enhancements in DIY offerings as well as our partnership with Google, we are positioning ourselves to grow our market share in the DIY space from competitors including SimpliSafe, Apple HomeKit, and Amazon Ring.

Success in acquiring new customers is dependent on a variety of factors, including brand and reputation, market visibility, service and product capabilities, quality, price, and the ability to identify and sell to prospective customers.

We are focused on extending our leadership position in the traditional residential and commercial security markets while also growing our share of emerging and adjacent markets, including solar.

The traditional residential and commercial security markets in the U.S.

remain highly competitive and fragmented, with a low number of major companies and thousands of smaller regional and local companies, which is primarily the result of relatively low barriers to entry in local geographies and the availability of companies providing outsourced monitoring services but not maintaining the customer relationship.

We believe our principal competitors within the traditional residential security market are Vivint Smart Home, Inc., Brinks Home Security (operating brand of Monitronics International, Inc.), and Xfinity Home Security (a division of Comcast Corporation).

Additionally, with our recent investments and enhancements in DIY offerings, as well as our partnership with Google, we are positioning ourselves to grow our market share in the DIY space, facing competition from SimpliSafe Home Security Systems, Apple’s HomeKit, and Amazon’s Ring Smart Security System.

We believe our principal competitors within the commercial security market are Johnson Controls International plc.

(“Johnson Controls”), Convergint Technologies, STANLEY Security (a division of Stanley Black & Decker, Inc.), and Securitas Electronic Security, Inc.

(a division of Securitas AB).

Furthermore, ADT competes with point solutions (products with one intended application) and home automation-only systems, because in some cases customers believe that point solutions and/or smart home devices replace the need for full-scale security systems.

Additionally, while we continue to see a shift toward self-installation of security and smart home devices, third-party professional installers are available in market which offer low-cost, professional installation alternatives, including Best Buy’s Geek Squad, OnTech, and Angi.

Also, some self-monitored solutions are available which don’t require a monthly fee for home automation services, including Blue by ADT (self-monitoring), Samsung SmartThings, and Ring Alarm (self-monitoring).

With these solutions, customers are not required to pay a monthly fee for access to home automation and/or self-monitored security, which means there are no-cost alternatives to professionally monitored (monthly fee-based) solutions.

While self-monitored solutions do not replace the need for professionally monitored solutions, as more features and functionality are built into the free, self-monitored solutions, it could reduce the demand for some customers to opt for more expensive, professionally monitored options.

With our acquisition of Sunpro Solar, our principal competitors in the solar industry are Sunrun, Inc., Sunnova Energy International, Inc., SunPower Inc., Trinity Solar, Inc., Titan Solar Power, and Power Home Solar, LLC.

We also face competition from companies that offer solar solutions in addition to their core business.

Our approach to competition is to emphasize the quality and reputation of our services, our superior customer service, our industry-leading brand, our monitoring centers, our commitment to consumer privacy, and our knowledge of customer needs.

In addition, we continue to add new features and functionalities to further differentiate our offerings and support a pricing premium.

In addition, we continue to add new features and functionalities to further differentiate our offerings, including the potential benefits of offering security and solar solutions together, and support a pricing premium.

We believe we are well positioned to compete with traditional and new competitors due to our focus on safety, security, and pricing;

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our reliable product solutions;

and our highly skilled installation and service organization.

our highly skilled installation and service organization;

and our partnership with Google.

Resources Material to Our Business

We purchase equipment and components of our products from a limited number of suppliers and distributors.

Inventory is held in our regional distribution centers at levels we believe are sufficient to meet current and anticipated customer needs.

We also maintain inventory of equipment and components at each field office and in technicians’ vehicles.

Generally, third-party distributors maintain a minimum stocking level of certain key items to cover supply chain disruptions.

We also utilize dual sourcing methods to minimize the risk of a disruption from any single supplier.

We do not anticipate any major interruptions in our supply chain.

Additionally, we rely on various information technology and telecommunications service providers as part of the functionality and monitoring of security systems.

Materials and Inventory

We purchase equipment and components of our products from a limited number of suppliers and distributors and utilize dual sourcing methods (when possible) to minimize the risk of a disruption from any single supplier.

We also rely on various information technology and telecommunications service providers as part of the functionality and monitoring of our systems.

Inventory is primarily held in our regional distribution centers at levels we believe are sufficient to meet current and anticipated customer needs;

and we maintain inventory of certain equipment and components at our field offices and in technicians’ vehicles.

Additionally, third-party distributors generally maintain a minimum stocking level of certain key items to cover supply chain disruptions.

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

While we have only experienced minimal impact in our Commercial operations and in the development of new products due to supply chain disruptions in 2021, we could experience a material impact to our sales and revenue, operating results, cash flows, and ability to commercialize new products in the future.

We are continuously monitoring global supply chain disruptions, and we do not currently anticipate any major interruptions in our supply chain in the near term.

Intellectual Property

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We own a portfolio of patents that relate to a variety of monitored security and automation technologies utilized in our business, including security panels and sensors as well as video and information management solutions.

We also own a portfolio of trademarks in the U.S.

and Canada, including ADT, ADT Pulse, Protection 1, ADT Commercial, and Blue by ADT.

Our brand is critical to our success due to the importance customers place on reputation and trust when deciding on a security provider.

We also own a portfolio of trademarks, including ADT, ADT Pulse, Protection 1, ADT Commercial, Blue by ADT, and ADT Solar.

In addition, we are a licensee of intellectual property, including from our third-party suppliers and technology partners.

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Additionally, we entered into a patent and trademark license agreement with TELUS granting (i) the use of our patents in Canada for a period of seven years and (ii) exclusive use of our trademarks in Canada for a period of five years and non-exclusive use for an additional two years thereafter.

Seasonality of Our Business

Our business experiences a certain level of seasonality with respect to residential customers.

Our security and home automation business has historically experienced a certain level of seasonality with respect to residential customers.

Since more household moves take place during the second and third calendar quarters of each year, our disconnect rate and new customer additions are typically higher in those quarters than in the first and fourth calendar quarters.

There is also a slight seasonal effect on our new customer installation volume and related cash expenses incurred in investments in new customers, however, other factors such as the level of marketing expense and relevant promotional offers can mitigate the effects of seasonality.

There is also a slight seasonal effect on our new customer installation volume and related cash expenses incurred in investments in new customers.

However, other factors such as the level of marketing expense and relevant promotional offers can mitigate the effects of seasonality.

In addition, we may see increased servicing costs related to higher alarm signals and customer service requests as a result of inclement weather-related incidents.

We believe the COVID-19 Pandemic affected some of these seasonal trends beginning in 2020 and continuing into 2021.

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

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

In our Solar business, seasonality may be impacted by customers’ desires to obtain tax credits towards the end of the year, which could cause sales to be higher during the last calendar quarter, and may also be impacted by regional weather patterns.

Government Regulation and Other Regulatory Matters

Our operations are subject to numerous federal, state, and local laws and regulations related to consumer protection, privacy, occupational licensing, building codes, environmental protection, labor and employment, tax, and permitting.

Most states in which we operate have licensing laws directed specifically toward professional installation and monitoring of security devices.

In certain jurisdictions, we must obtain licenses or permits to comply with standards governing employee selection, training, and business conduct.

We do not believe that federal, state, and local laws and regulations relating to the discharge of materials into the environment, or otherwise relating to the protection of the environment, or any existing or pending climate change legislation, regulation, or international treaties or accords are reasonably likely to have a material effect in the foreseeable future on our business.

We will continue to monitor emerging developments in this area.

We rely extensively on telecommunications service providers to communicate signals as part of the functionality and monitoring of security systems.

These telecommunications service providers are regulated in the U.S.

by the Federal Communications Commission (“FCC”) and state public utilities commissions.

Our advertising and sales practices are regulated by the U.S.

Federal Trade Commission (“FTC”) and state and consumer protection laws, which may include restrictions on the manner in which we promote the sale of our security services and require us to provide most purchasers of our services with three-day or longer rescission rights.

Our communications with current and potential customers are regulated by federal and state laws, which include restrictions on telemarketing activities, the use of auto-dialing technology, email marketing, and text communications.

Some local government authorities have adopted or are considering various measures aimed at reducing false alarms.

Our operations are subject to numerous federal, state, and local laws and regulations related to occupational licensing, building codes, tax, and permitting, as well as consumer protection and privacy, labor and employment, and environmental protection.

Changes in laws and regulations can positively and negatively affect our operations and impact the manner in which we conduct our business.

Licensing and Permitting - Most states in which we operate have licensing laws directed specifically toward professional installation and monitoring of security devices, as well as solar installations.

Our business is also subject to requirements, codes, and standards imposed by local government jurisdictions, as well as various insurance, approval and listing, and standards organizations.

We maintain the relevant and necessary licenses related to the provision of installation of security and solar systems and related services in the jurisdictions in which we operate.

Additionally, we rely extensively on telecommunications service providers, which are regulated in the U.S.

by the Federal Communications Commission (“FCC”) and state public utilities commissions, to communicate signals as part of the functionality and monitoring of security and solar systems.

Our security business is subject to various state and local measures aimed at reducing false alarms.

Such measures include requiring permits for individual alarm systems, revoking such permits following a specified number of false alarms, imposing fines on customers or alarm monitoring companies for false alarms, limiting the number of times police will respond to alarms at a particular location after a specified number of false alarms, requiring additional verification of an alarm signal before the police respond, or providing no response to residential system alarms.

Our industry is also subject to requirements, codes, and standards imposed by various insurance, approval and listing, and standards organizations.

Depending upon the type of customer, security service provided, and requirements of the applicable local governmental jurisdiction, adherence to the requirements, codes, and standards of such organizations is mandatory in some instances and voluntary in others.

Changes in laws and regulations can affect our operations, both positively and negatively, and impact the manner in which we conduct our business.

Human Capital and Environmental, Social, and Governance (“ESG”)

Our success is built upon the success of those whose lives we touch.

This includes our customer base, our employees, and the communities we serve, who we impact both directly and indirectly as we seek to accomplish our corporate mission to help our customers protect and connect to what matters most—their families, homes, and businesses.

We place a strong emphasis on environmental, social, and governance issues and believe that such emphasis enhances our corporate performance, while enabling us to hire and retain top talent whose values embrace environmental and social responsibility and who remain passionate about our organization.

Human Capital

As of December 31, 2020, we employed approximately 20,500 people, of whom approximately 5,700 are installation and service technicians, approximately 4,100 are customer care professionals, and approximately 4,500 are sales consultants.

Our Solar business is exposed to federal, state, and local government regulations and policies concerning the electric utility industry, as well as internal policies of the electric utility companies, which often is exposed to electricity pricing, tax credits and other incentives, and the interconnection of customer-owned electricity generation.

Consumer Protection and Privacy - Our advertising and sales practices are regulated by the U.S.

Federal Trade Commission (“FTC”) and state and consumer protection laws, which may include restrictions on the manner in which we promote the sale of our products and services and require us to provide most consumers with three-day or longer rescission rights.

Our communications with current and potential customers are regulated by federal and state laws, which include restrictions on the use of telemarketing, auto-dialing technology, email marketing, and text communications.

Labor and Employment - Our operations are subject to regulation under the U.S.

Occupational Safety and Health Act, or OSHA, and equivalent state laws.

Failure to comply with applicable OSHA regulations or other federal, state, and local laws and regulations, even if no work-related serious injury or death occurs, may result in civil or criminal enforcement and substantial penalties, significant capital expenditures, or suspension or limitation of operations.

Additionally, in certain jurisdictions, we must obtain licenses or permits to comply with standards governing employee selection, training, and business conduct.

Environmental Protection - We continue to monitor emerging developments regarding environmental protection laws.

At this time, we do not believe that federal, state, and local laws and regulations relating to the discharge of materials into the environment, or otherwise relating to the protection of the environment, or any existing or pending climate change legislation, regulation, or international treaties or accords are reasonably likely to have a material effect in the foreseeable future on our business.

Human Capital and ESG

As we seek to accomplish our corporate mission and execute on our strategic initiatives, our activities both directly and indirectly impact our customer base, our employees, and the communities we serve.

We place a strong emphasis on environmental, social, and governance issues, and we believe such emphasis enhances our corporate performance, while enabling us to hire and retain top talent who share these values and passion about our organization.

Human Capital Management

As of December 31, 2021, we employed approximately 25,000 people, including approximately 3,600 security system sales consultants and 2,000 solar sales consultants;

6,200 security installation and service technicians and 1,200 solar installation technicians;

and 4,500 customer care professionals.

Approximately 5% of our employees are covered by collective bargaining agreements, and we believe our relations with our employees and labor unions have generally been positive.

We are committed to fostering a culture and environment where every employee feels valued.

Our success depends in large part on our hiring and retaining top talent across the entire organization, with primary emphasis on our management team and our employees who interface directly with our customers (such as sales representatives, installation and service technicians, and call center personnel).

We compete for talent with other companies both smaller and larger, and both in our market and in other industries.

In order to attract and retain top talent, we focus on having a diverse, inclusive, and safe workplace, while offering competitive compensation, benefits, and health and wellness programs.

A majority of employees also have incentive compensation opportunities, which are primarily focused on financial, sales, operational, and customer service metrics.

In addition, our long-term equity compensation is intended to align management interests with those of our stockholders and to encourage the creation of long-term value.

In December 2021, we acquired Sunpro Solar and are continuing to integrate them into our human capital programs.

Performance Culture

ADT defines a Performance Culture as our shared values, priorities, and principles that shape beliefs and drive behaviors and decision-making that drives high levels of performance at an individual, team, and organizational level.

We are committed to fostering a culture and environment where every team member feels valued and empowered to collaborate and achieve business results.

In 2021, we made adjustments to our annual performance reviews across key talent areas to focus on performance differentiation, such as introducing individual performance components as part of certain team members’ annual incentive plans.

Talent Recruitment and Management

We are committed to attracting, retaining, and developing a strong and dedicated workforce as our success depends in large part on our hiring and retaining top talent across the entire organization, with primary emphasis on our management team and our employees who interface directly with our customers (such as sales representatives, installation and service technicians, and call center personnel), which make up the majority of our organization.

We focus on having a diverse, inclusive, and safe workplace, while offering competitive compensation, benefits, and health and wellness programs.

We provide training and learning opportunities, rotational assignment opportunities, and continuous feedback in order to further our employee development.

In addition, our long-term equity compensation is intended to align management interests with those of our stockholders and to encourage the creation of long-term value.

In 2021, we shifted to a mix of hybrid, remote, and in-person work based on role to support talent attraction and retention.

We offer ADT employees a variety of learning opportunities, tuition reimbursement, and opportunities for employee mobility by supporting internal promotions to fill open positions, all of which are designed to allow employees to be successful throughout their careers.

Inclusive Diversity and Belonging (“IDB”)

We are committed to building a culture of diversity and inclusion for our employees.

Because our employees reflect the communities where we live and serve, we strive to hire and retain a workforce that is truly representative of our markets.

In 2020, we took a meaningful step on our journey to create a work environment where inclusion, diversity, and belonging can truly thrive by establishing the ADT Inclusive Diversity and Belonging Council (the “AIDBC”).

The AIDBC plays an integral role in laying the ground-work for establishing enterprise initiatives that will advance our mission to promote diversity and inclusion.

The AIDBC represents a broad cross section of our organization, including executive and senior management, and is expected to help build an enterprise wide program by elevating inclusion and diversity as a business priority across the organization in a manner that includes measurable goals and accountability.

We value the health and safety of our team members and customers above all else.

We continually work to foster a culture of safety that enables our employees to minimize risk and to understand and follow safety rules, as well as to identify and correct unsafe actions, behaviors, or situations.

We believe that all occupational injuries and illnesses, as well as environmental incidents, are generally preventable and we focus on compliance with all applicable environmental, health, and safety requirements.

We continue to institute fleet safety initiatives to protect our drivers and others across our fleet of vehicles, including collision warning and auto braking technologies.

We also offer our employees and their families comprehensive health and wellness rewards to help them achieve their best overall self.

We believe our employees should reflect the communities where we live and serve, and we strive to hire and retain a workforce that is truly representative of our markets.

We track our workforce composition data over time to determine if we are making appropriate progress in advancing gender, racial, and ethnic representation within our employee demographics.

As of December 31, 2021, approximately half of our workforce consisted of racially and ethnically diverse employees and approximately one-third consisted of female employees.

ADT’s Inclusive Diversity and Belonging Council (the “AIDBC”) and Business Employee Resource Groups (“BERG”) help advance our IDB efforts.

In 2020, we took a meaningful step on our journey to create a work environment where inclusion, diversity, and belonging can thrive by establishing the AIDBC.

The AIDBC represents a broad cross section of our organization, including executive and senior management, and focuses on driving IDB commitments and priorities by identifying and prioritizing action, taking accountability for achieving results, and ensuring timely updates are provided to our Chief Executive Officer.

In 2021, the AIDBC established ADT’s IDB “North Star,” which states that everyone deserves to feel safe and to succeed.

We strive to create a workplace that encourages the sharing of diverse ideas, celebrates differences, sees value in diversity, and provides the resources, space, and opportunity for employees to grow and succeed.

Along with the establishment of the IDB North Star, each of the council members partnered with their respective business executive to establish IDB commitments and priorities for each

respective business area, which focus on attracting, growing, and developing talent through participation in business initiatives and community work.

We also support and enable our employees to participate in BERGs, which offer specific opportunities for employees to partner and collaborate through learning and networking channels, volunteer projects, and mentoring.

Our BERGs also participate in various business initiatives;

and officers and executives from across the Company leverage their time, networks, and resources to support our various BERGs and advance IDB efforts, which have grown in 2021.

Employee Well-being and Health & Safety

We show our commitment to caring for our employees’ well-being by devoting significant resources to team members’ wellness, health, and safety.

In January 2021, we launched an annual well-being program available to all team members, which includes a variety of education and coaching programs, as well as monthly and quarterly well-being sessions.

Employees enrolled in our self-insured medical plan are eligible for cash incentives by completing certain well-being activities.

More than 6,500 employees registered for the well-being portal, with 1,500 employees and spouses/domestic partners completing both a health assessment and a biometric screening.

Additionally, enhanced safety guidelines, cleaning protocols, and social distancing practices remain in place for both in-office workers and branch and field team members during the ongoing COVID-19 Pandemic.

In order to continue to both protect our employees and serve our customers in response to the COVID-19 Pandemic, we have adjusted, and are continuously evolving, certain aspects of our operations, as discussed above under the section “Key Business Developments and Recent Initiatives.”

Our Environmental, Health, and Safety (“EHS”) vision is to build a culture that promotes safe behaviors on each task, every day, to achieve zero incidents and enhance employee wellness, and to minimize our environmental impact.

In order to achieve our vision, we strive to incorporate our values of people, prevention, and accountability into our business and the decisions we make each day.

We have implemented an EHS management system that includes expectations for compliance, accountability, sustainability, and continuous improvement.

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

In order to continue to both protect our employees and serve our customers, we have adjusted and are continuously evolving certain aspects of our operations from those as discussed above, which includes (i) detailed protocols for infectious disease safety for employees, (ii) daily wellness checks for employees, and (iii) certain work from home actions, including for the majority of our call center professionals.

In addition, we have invested in personal protective equipment for our employees and other work from home initiatives,

We believe that all occupational injuries and illnesses, as well as environmental incidents, are generally preventable, and we focus on compliance with all applicable environmental, health, and safety requirements.

We have implemented an EHS management system that includes expectations for compliance, accountability, sustainability, and continuous improvement to foster a culture of safety that enables our employees to minimize risk and to understand and follow safety rules, as well as to identify, avoid, and correct unsafe actions, behaviors, or situations.

For example, we continue to institute fleet safety initiatives across our fleet of vehicles, including installing and maintaining collision warning and auto braking technologies on all of our vehicles.

Environmental

We are committed to reducing our impact on the environment by promoting environmental stewardship throughout our organization.

We have implemented our ADT Environmental Absolutes framework, which represents our focus on complying with environmental requirements, addressing proper disposal of waste streams, and promoting recycling of materials.

We invest significant time and resources to reduce building greenhouse gases and have focused on efficiency improvements in lighting, air handling, and data operations.

In 2021, we began providing virtual service appointments as an option to our customers, reducing our truck rolls and related greenhouse gas emissions.

We also acquired Sunpro Solar and believe that we can grow our solar business in a meaningful manner to help reduce the negative impact that certain traditional or non-sustainable energy sources have on the environment.

We have also implemented our ADT Environmental Absolutes framework, which represents our focus on complying with environmental requirements, addressing proper disposal of waste streams, and promoting recycling of materials.

We invest significant time and resources to reduce our greenhouse gas emissions and have focused on efficiency improvements in lighting, air handling, and data operations.

We continually explore methods to reduce greenhouse gases from our motor vehicle fleet, including through the purchase of newer vehicle models having greater fuel efficiency and the use of hybrid vehicles.

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We will continue to look for new, and to improve existing, initiatives that reduce our carbon footprint.

Our volunteerism and philanthropy social initiatives are varied and widespread across the organization.

We are also assessing the impact of climate change on our operations and supply chain as one aspect of our enterprise risk management review process and will continue to do so on an ongoing basis.

Our volunteerism and philanthropic social initiatives are varied and widespread across the organization and the communities we serve.

Our team members across the U.S.

give back to their communities as part of ADT Always Cares, a corporate-wide citizenship program comprised of employee-directed volunteerism and philanthropy.

Through our LifeSaver Awards program, we provide support to first responders by providing charitable contributions to the police and fire departments who helped save our customers from home fires, carbon monoxide poisoning, and other medical emergencies.

During 2020, we increased our philanthropy campaign by providing contributions to more than 130 non-profit organizations impacted by the COVID-19 Pandemic, donating meals to

employees at major hospitals to express gratitude for their sacrifice and dedication in response to the COVID-19 Pandemic, and giving to volunteer fire departments that battled wildfires in the western U.S.

We also look for opportunities to support organizations that focus on diversity and inclusion efforts.

In 2020, we donated to the United Negro College Fund to provide five students with four-year college scholarships.

We are committed to making sure that every team member understands our core values of trust, collaboration, service and innovation.

That understanding begins with our Code of Conduct, which outlines our commitment to our customers, our investors, our communities, and to one another.

We contributed approximately $750,000 to over 100 non-profit organizations in 2021, ranging from local soup kitchens and homeless shelters to many national organizations like Habitat for Humanity and the Ronald McDonald House.

Additionally, we identified five students to receive four-year scholarships as part of our support for the United Negro College Fund, and we also provided each student ongoing mentoring from ADT leaders.

ADT Always Cares also supports inclusion, diversity, and belonging initiatives by contributing to causes involving our BERGs.

Through our LifeSaver Awards program, we provide support to first responders, especially volunteer firefighters, an effort which has been a long-standing commitment of ADT as we know it is important for customers to receive a timely response to their alarm activations during an active emergency.

In December 2021, ADT granted an aggregate of $50,000 to five volunteer fire departments that were unable to hold their regular fundraisers in their communities due to the impact of the COVID-19 Pandemic.

Helping ensure first responder agencies are set up for success with the proper equipment, training, and other needs is paramount to meeting security service customer expectations.

We are committed to making sure every team member understands and embraces our core values of trust, collaboration, service, and innovation.

That charge begins with our Code of Conduct, which outlines our commitment to our customers, our investors, our communities, and to one another.

Our Code of Conduct outlines what is expected of our employees and ensures we continue to foster a culture of high integrity.

Our Code of Conduct is supplemented by a variety of additional policies applicable to all team members which are designed to further foster ethical and sound business practices including, for example, policies with respect to non-retaliation, equal employment opportunity, anti-harassment, information technology security, personal data protection and privacy, conflicts of interest, intellectual property and the protection of confidential information, insider trading, anti-bribery and corruption, and the approval of transactions with related persons.

In addition, our Audit Committee, which is comprised solely of independent directors, is responsible on behalf of the Board for the oversight of our enterprise risk management program.

As one part of this program, on an annual basis, management reviews with the Audit Committee and the Board the Company’s Risk Appetite Statement with respect to the level of risk that the Company is willing to accept in pursuit of its goals and the risk tolerances management could assume with respect to those risks that are relevant to the Company.

We adhere to the governance requirements established by federal and state law, the Securities and Exchange Commission (the “SEC”), and the NYSE, and we strive to establish appropriate risk management methods and control procedures to adequately manage, monitor, and control the major risks we may face day to day.

Recent Initiatives Within Our Business Operations

We have been successful in improving certain of our operating key performance indicators in recent years, such as customer acquisition efficiency and customer retention.

We believe these improvements in our fundamentals have positioned us well to achieve long-term capital efficient growth.

During 2020, we commenced certain ongoing strategic initiatives that we believe will be transformative to our business.

We have seen an increase in interest in smart home offerings and other mobile technology applications that we believe is attributable to a variety of factors, including advancements in technology, younger generations of consumers, and shifts to de-urbanization.

Our strategic initiatives are intended to help us satisfy consumer and commercial demands in light of these macro-level dynamics and to position us for sustainable growth for years to come.

For example, our partnership with Google represents the combination of the leading security brand and the leading technology brand joining forces to introduce the next-generation smart and helpful home.

Co-branded offerings are expected to be available beginning in 2021 in the form of both DIFM and DIY solutions and will include the integration of leading Google devices paired with Google video and analytics service.

As part of this partnership, each company will contribute $150 million upon the achievement of certain milestones towards the joint marketing of devices and services, customer acquisition, training of our employees for the sales, installation, customer service, and maintenance for the product and service offerings, and technology updates for products included in such offerings.

These co-branded offerings will be initially supported by our current technology platform and we then plan to transition them to be supported by our ADT-owned next-generation professional security and automation technology platform, which is currently being developed in coordination with Google.

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

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

We are also increasing our emphasis on the use of strategic partnerships and alliances with third parties to expand our market presence.

For example, through our partnerships with D.R.

Horton and Lyft, we are teaming up with national leaders in home construction and ride sharing, respectively, while also investing in and integrating our services with new and existing technologies and applications.

We believe there is a healthy pipeline of future partnership and alliance opportunities.

Given the successful implementation of a temporary work from home strategy during 2020, we are re-imagining what our physical footprint should look like.

While the COVID-19 Pandemic has presented its challenges, it has also presented opportunities, such as with respect to how employees may most effectively work from home.

This shift to an at home environment may provide us with an opportunity to more permanently reduce our number of fixed physical locations.

For example, we expect a portion of our monitoring and customer service employees to remain in a permanent work from home environment.

We believe this will reduce operating expenses while being a significant benefit for our employees, thereby making ADT an even more attractive place to work.

In addition, we have been focused on increasing our market share and penetration in the commercial market, which began with the Red Hawk Acquisition in 2018.

While we experienced significant growth in our commercial channel during 2019, our commercial growth was negatively impacted by the COVID-19 Pandemic during 2020.

However, we have now completed our integration of the Red Hawk business, and believe we are poised to return to commercial growth organically and through opportunistic value-add acquisitions.

We also believe that strong governance is essential to achieving our commitments around ESG.

To this end, we have established a working group of leaders from throughout the company who are focused on ESG.

During 2021, we conducted a materiality assessment across certain of our employees, investors, customers, and suppliers to help determine what might be the important areas of focus for our ESG initiatives.

We also formalized our ESG reporting under the Audit Committee of our Board of Directors.

In February 2022, we adopted the following ESG Commitment Statement:

Our commitment to respect the environment, promote social responsibility, and lead with responsible governance is fundamental to who we are and guides our safe, smart, and sustainable business practices.

As we progress our ESG program during 2022, we will focus our initiatives in one or more of the following areas, which we determined to be important to our stakeholders through our materiality assessment:

(i) data privacy and cyber security;

(ii) inclusive diversity and belonging;

(iii) employee well-being and development;

(iv) customer and community health and safety;

(v) environmental management;

(vi) climate change risk management;

(vii) responsible governance;

and (viii) product safety and quality.

Available Information

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Our investor relations website is located at https://investor.adt.com.

We make available free of charge on our investor relations website under “Financials” our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, reports filed pursuant to Section 16 of the Securities Exchange Act of 1934 (the “Exchange Act”), and any amendments to those reports as soon as reasonably practicable after we electronically file or furnish such materials to the SEC.

We make available free of charge on our investor relations website under “Financials” our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, reports filed pursuant to Section 16 of the Securities Exchange Act of 1934 (the “Exchange Act”), and any amendments to those reports that are filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file or furnish such materials to the SEC.

The SEC maintains a website that contains reports, proxy and information statements, and other information regarding our filings at http://www.sec.gov .

Use of Website to Provide Information

From time to time, we have made and expect in the future to use our website as a channel of distribution of material information regarding the Company.

From time to time, we have made, and expect in the future to use, our website as a means of disclosing material information to the public in a broad, non-exclusionary manner, including for purposes of the SEC’s Regulation Fair Disclosure (Reg FD).

Financial and other material information regarding the Company is routinely posted on our website and accessible at https://investor.adt.com.

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

What changed 10-K

Item 1. Business