What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-05-06 compared with 2021-11-09 · 503 added, 518 removed, 361 unchanged (74% of the section changed)

3 unchanged sentences

(in thousands, except share and per share data)

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Current assets:

28 unchanged sentences

Preferred stock—authorized 1,000,000 shares of $ 0.01 par value;

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

zero issued and outstanding as of March 31, 2022 and December 31, 2021.

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

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

issued and outstanding shares of 851,323,652 and 846,825,868 as of March 31, 2022 and December 31, 2021, respectively.

Class B common stock—authorized 100,000,000 shares of $ 0.01 par value;

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

issued and outstanding shares of 54,744,525 as of March 31, 2022 and December 31, 2021.

Additional paid-in capital 7,262,237 7,261,267

7 unchanged sentences

(in thousands, except per share data)

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

2021 2020 2021 2020

Three Months Ended March 31,

Monitoring and related services $ 1,121,296 $ 1,062,766

Installation and other 218,613 253,247 681,448 867,050

Installation, product, and other 423,451 241,938

Total revenue 1,544,747 1,304,704

3 unchanged sentences

Merger, restructuring, integration, and other 528 20,507

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

Operating income (loss) 75,980 ( 16,380 )

Interest expense, net ( 6,307 ) ( 47,724 )

Loss on extinguishment of debt — ( 156 )

Other income 1,511 1,992 4,847 6,572

Loss before income taxes ( 145,625 ) ( 140,797 ) ( 374,953 ) ( 653,626 )

Income tax benefit 36,496 27,699 92,080 133,494

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

Net (loss) income per share - basic:

Other income (expense) 1,496 1,803

Income (loss) before income taxes 71,169 ( 62,457 )

Income tax benefit (expense) ( 19,524 ) 14,563

Net income (loss) $ 51,645 $ ( 47,894 )

Net income (loss) per share - basic:

Common stock $ 0.06 $ ( 0.06 )

3 unchanged sentences

Class B common stock 54,745 54,745

Net loss per share - diluted:

Net income (loss) per share - diluted:

Common stock $ 0.06 $ ( 0.06 )

5 unchanged sentences

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

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

2021 2020 2021 2020

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

Three Months Ended March 31,

Net income (loss) $ 51,645 $ ( 47,894 )

Other comprehensive income (loss), net of tax:

2 unchanged sentences

Total other comprehensive income (loss), net of tax 11,083 12,512

Comprehensive loss $ ( 97,341 ) $ ( 101,507 ) $ ( 247,164 ) $ ( 596,044 )

Comprehensive income (loss) $ 62,728 $ ( 35,382 )

See Notes to Condensed Consolidated Financial Statements

2 unchanged sentences

(in thousands)

Three Months Ended September 30, 2021

Number of Common Shares Number of Class B Common Shares Common Stock Class B Common Stock Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Stockholders' Equity

Three Months Ended March 31, 2022

Number of Common Shares Number of Class B Common Shares Common Stock Class B Common Stock Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Total Stockholders' Equity

Beginning balance 846,826 54,745 $ 8,468 $ 547 $ 7,261,267 $ ( 3,952,590 ) $ ( 68,973 ) $ 3,248,719

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

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

Net income (loss) — — — — — 51,645 — 51,645

Other comprehensive income (loss), net of tax — — — — — — 11,083 11,083

Dividends — — — — — ( 31,758 ) — ( 31,758 )

1 unchanged sentence

Transactions related to employee share-based compensation plans and other

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

Three Months Ended September 30, 2020

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

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

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

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

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

Share-based compensation expense — — — — 26,431 — — 26,431

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

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

See Notes to Condensed Consolidated Financial Statements

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

Nine Months Ended September 30, 2021

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

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

Other comprehensive income, net of tax — — — — — — 35,709 35,709

Dividends, including dividends reinvested in common stock — — — — 4 ( 87,506 ) — ( 87,502 )

Share-based compensation expense — — — — 45,848 — — 45,848

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

4,498 — 45 — ( 15,050 ) ( 437 ) — ( 15,442 )

Ending balance 851,324 54,745 $ 8,513 $ 547 $ 7,262,237 $ ( 3,933,140 ) $ ( 57,890 ) $ 3,280,267

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

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

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

Net loss — — — — — ( 520,132 ) — ( 520,132 )

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

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

Net income (loss) — — — — — ( 47,894 ) — ( 47,894 )

Other comprehensive income (loss), net of tax — — — — — — 12,512 12,512

Dividends, including dividends reinvested in common stock

— — — — 4 ( 29,136 ) — ( 29,132 )

Share-based compensation expense — — — — 16,019 — — 16,019

Transactions related to employee share-based compensation plans and other

3,870 — 39 — ( 12,454 ) ( 516 ) — ( 12,931 )

Ending balance 774,884 54,745 $ 7,749 $ 547 $ 6,644,332 $ ( 3,568,615 ) $ ( 106,103 ) $ 2,977,910

3 unchanged sentences

(in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from operating activities:

Net loss $ ( 282,873 ) $ ( 520,132 )

Adjustments to reconcile net loss to net cash provided by operating activities:

Net income (loss) $ 51,645 $ ( 47,894 )

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Depreciation and intangible asset amortization 476,123 469,809

12 unchanged sentences

Other, net ( 163,110 ) ( 3,623 )

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

Net cash provided by (used in) operating activities 308,072 359,334

Cash flows from investing activities:

4 unchanged sentences

Other investing, net 373 1,408

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

Net cash provided by (used in) investing activities ( 405,123 ) ( 399,112 )

Cash flows from financing activities:

Proceeds from issuance of common stock — 450,000

Proceeds from long-term borrowings 280,000 10,729

5 unchanged sentences

Other financing, net ( 29,118 ) ( 26,686 )

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

Net cash provided by (used in) financing activities 91,845 ( 40,685 )

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

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

Net increase (decrease) during the period ( 5,206 ) ( 80,463 )

Beginning balance 33,277 207,747

Ending balance $ 28,071 $ 127,284

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

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

See Notes to Condensed Consolidated Financial Statements

2 unchanged sentences

DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Business

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

Business and Organization

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

With the acquisition of Compass Solar Group, LLC (now named ADT Solar LLC) (“ADT Solar”) (the “ADT Solar Acquisition”) in December 2021, the Company is now also a leading provider of residential solar and energy storage solutions.

The Company primarily conducts business under the ADT brand name.

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

3 unchanged sentences

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

The Company primarily conducts business under the ADT brand name.

In January 2018, the Company completed an initial public offering (“IPO”) and its common stock (“Common Stock”) began trading on the New York Stock Exchange under the symbol “ADT.”

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

The Company is majority owned by Prime Security Services TopCo Parent, L.P.

The Company 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”).

2 unchanged sentences

(together with its subsidiaries and affiliates, “Apollo” or the “Sponsor”).

Basis of Presentation and Significant Accounting Policies

The preparation of the condensed consolidated financial statements in accordance with generally accepted accounting principles in the United States of America (“GAAP”) requires the Company to select accounting policies and make estimates that affect amounts reported in the condensed consolidated financial statements and the accompanying notes.

The Company’s estimates are based on the relevant information available at the end of each period.

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

The condensed consolidated financial statements included herein are unaudited, but in the opinion of management, such financial statements include all adjustments, consisting of normal recurring adjustments, necessary to summarize fairly the Company’s financial position, results of operations, and cash flows for the interim periods presented.

The interim results reported in these condensed consolidated financial statements should not be taken as indicative of results that may be expected for future interim periods or the full year.

For a more comprehensive understanding of the Company and its interim results, these condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Annual Report”), which was filed with the U.S.

Securities and Exchange Commission (the “SEC”) on February 25, 2021.

Unless otherwise noted, the Company’s accounting policies used in the preparation of these condensed consolidated financial statements do not differ from those used in the annual consolidated financial statements.

The Condensed Consolidated Balance Sheet as of December 31, 2020 included herein was derived from the audited consolidated financial statements as of that date but does not include all the footnote disclosures required in the annual consolidated financial statements.

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

Basis of Presentation

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

and its wholly-owned subsidiaries and have been prepared in U.S.

dollars in accordance with GAAP.

dollars in accordance with generally accepted accounting principles in the United States of America (“GAAP”).

All intercompany transactions have been eliminated.

The results of companies acquired are included in the condensed consolidated financial statements from the effective date of acquisition.

Certain prior period amounts have been reclassified to conform with the current period presentation.

Segment Change

Effective in the first quarter of 2021, the manner in which the Company’s Chief Executive Officer, who is the chief operating decision maker (the “CODM”), evaluates performance and makes decisions about how to allocate resources changed.

Therefore, the Company now reports results in two operating and reportable segments, Consumer and Small Business (“CSB”) and Commercial, rather than a single operating and reportable segment.

Where applicable, prior periods have been

retrospectively adjusted to reflect the new operating and reportable segment structure.

The interim results reported herein should not be taken as indicative of results that may be expected for future interim periods or the full year.

The Condensed Consolidated Balance Sheet as of December 31, 2021 included herein was derived from the audited consolidated financial statements as of that date but does not include all the footnote disclosures required in the annual consolidated financial statements.

For a more comprehensive understanding of the Company and its interim results, these condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Annual Report”), which was filed with the U.S.

Securities and Exchange Commission (the “SEC”) on March 1, 2022.

The Company organizes its segments based on customer type and reports results in three operating and reportable segments, which are Consumer and Small Business (“CSB”), Commercial, and Solar, based on the manner in which the Company’s Chief Executive Officer, who is the chief operating decision maker (the “CODM”), evaluates performance and makes decisions about how to allocate resources.

The accounting policies of the Company’s reportable segments are the same as those of the Company.

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

• Consumer and Small Business (CSB) - Customers in the CSB segment are comprised of residential homeowners, small business operators, and other individual consumers.

The CSB segment primarily includes (i) revenue and operating costs from the sale, installation, servicing, and monitoring of integrated security and automation systems, as well as other offerings such as mobile security and home health solutions;

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

and (iii) general corporate costs and other income and expense items not included in the Commercial segment.

Where applicable, results for the Company’s Canadian operations prior to its sale in the fourth quarter of 2019 are included in the CSB segment based on the primary customer market served in Canada.

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

The Commercial segment primarily includes (i) revenue and operating costs from the sale, installation, servicing, and monitoring of integrated security and automation systems, fire detection and suppression systems, and other related offerings;

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

and (iii) dedicated corporate and other costs.

Refer to Note 3 “Segment Information” for additional information on the Company’s segments.

Use of Estimates

The preparation of the condensed consolidated financial statements in accordance with GAAP requires the Company to select accounting policies and make estimates that affect amounts reported in the condensed consolidated financial statements and the accompanying notes.

The Company’s estimates are based on the relevant information available at the end of each period.

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

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

COVID-19 Pandemic

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

While responses have varied by individuals, businesses, and state and local municipalities, the COVID-19 Pandemic has had certain notable adverse impacts on general economic conditions, including the temporary and permanent closures of many businesses, increased governmental regulations, supply chain disruptions, and changes in consumer spending due to significant unemployment and other effects attributable to the COVID-19 Pandemic.

While responses have varied by individuals, businesses, and state and local governments, the COVID-19 Pandemic, including recent variants, caused certain notable impacts on general economic conditions, including temporary and permanent closures of many businesses, increased governmental regulations, supply chain disruptions, and changes in consumer spending.

To protect its employees and serve its customers, the Company implemented and is continuously evolving certain measures, such as (i) detailed protocols for infectious disease safety for employees, (ii) employee daily wellness checks, and (iii) certain work from home actions, including for the majority of the Company’s call center professionals.

The Company considered the on-going and pervasive economic impact of the COVID-19 Pandemic in the assessment of its financial position, results of operations, cash flows, and certain accounting estimates as of and for the three and nine months ended September 30, 2021.

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

The Company considered the on-going and pervasive economic impact of the COVID-19 Pandemic in the assessment of its financial position, results of operations, and cash flows, as well as certain accounting estimates, as of and for the periods presented.

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

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2021-01, Reference Rate Reform (Topic 848) :

Scope, amends ASU 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting, and clarifies the scope and guidance of Topic 848 to allow derivatives impacted by the reference rate reform to qualify for certain optional expedients and exceptions for contract modifications and hedge accounting.

The guidance is optional and is effective for a limited period of time through December 31, 2022.

As of March 31, 2022, this guidance had no impact on the condensed consolidated financial statements.

However, the Company will continue to evaluate this guidance in subsequent periods.

Recently Issued Accounting Pronouncements

ASU 2022-02, Financial Instruments — Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”), eliminates the accounting guidance for troubled debt restructurings by creditors while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty.

ASU 2022-02 also requires public business entities to disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases.

This guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

It should also be applied prospectively, with an option to apply a modified retrospective transition method in relation to the recognition and measurement of troubled debt restructurings, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption.

Early adoption is permitted, including adoption in an interim period, in which case the guidance should be applied as of the beginning of the fiscal year that includes the interim period.

The Company is currently evaluating the impact of this guidance.

Summary of Significant Accounting Policies

Unless otherwise noted, the Company’s accounting policies used in the preparation of these condensed consolidated financial statements as discussed below, or included within the respective footnotes herein, do not materially differ from those disclosed in the 2021 Annual Report.

Cash and Cash Equivalents and Restricted Cash and Restricted Cash Equivalents

All highly liquid investments with original maturities of three months or less from the time of purchase are considered to be cash equivalents.

Restricted cash and restricted cash equivalents are cash and cash equivalents that are restricted for a specific purpose and cannot be included in the general cash and cash equivalents account.

Restricted cash and restricted cash equivalents are cash and cash equivalents that are restricted for a specific purpose and cannot be presented within the general cash and cash equivalents account.

Restricted cash and restricted cash equivalents are reflected in prepaid expenses and other current assets in the Condensed Consolidated Balance Sheets.

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

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

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Cash and cash equivalents and restricted cash and restricted cash equivalents as reported in the Condensed Consolidated Balance Sheets reconcile to the amounts shown in the Condensed Consolidated Statements of Cash Flows as follows:

(in thousands) March 31, 2022 December 31, 2021

Cash and cash equivalents $ 17,404 $ 24,453

1 unchanged sentence

Ending balance $ 28,071 $ 33,277

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

Subscriber System Assets and Deferred Subscriber Acquisition Costs

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

Upon termination of the contract with the customer, the Company may retrieve such assets.

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

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

Upon customer termination, the Company may retrieve such assets.

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

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

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

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

Subscriber system assets reflected in the Condensed Consolidated Balance Sheets includes:

(in thousands) March 31, 2022 December 31, 2021

Gross carrying amount $ 5,676,138 $ 5,499,703

1 unchanged sentence

Subscriber system assets, net $ 2,919,362 $ 2,867,528

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

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

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

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

Three Months Ended March 31,

(in thousands) 2022 2021

3 unchanged sentences

Accrued Expenses and Other Current Liabilities

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

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

Accrued expenses and other current liabilities includes:

(in thousands) March 31, 2022 December 31, 2021

Accrued interest $ 83,288 $ 124,579

4 unchanged sentences

Accrued expenses and other current liabilities $ 629,223 $ 737,245

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Radio Conversion Costs

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

The Company commenced a program in 2019 to replace the 3G and Code-Division Multiple Access (“CDMA”) cellular equipment used in many of its security systems to prepare for the retirement of the 3G and CDMA networks during 2022.

From inception of this program through March 31, 2022, the Company incurred $ 298 million of radio conversion costs, net of related incremental radio conversion revenue.

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

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

Three Months Ended March 31,

(in thousands) 2022 2021

2 unchanged sentences

$ 8,193 $ 10,940

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

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

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

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

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

During November 2020, the Company acquired Cell Bounce, a technology company with proprietary radio conversion technology in the form of a user-installable device, which was intended to facilitate the transition of customers on 3G networks in a cost efficient and timely manner.

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

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

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

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

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

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

Fair Value of Financial Instruments

1 unchanged sentence

Due to their short-term and/or liquid nature, the fair values of cash, restricted cash, accounts receivable, and accounts payable approximate their respective carrying amounts.

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

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

Cash Equivalents - Included in cash and cash equivalents as applicable from time to time are investments in money market mutual funds.

These investments are classified as Level 1 fair value measurements, which represent unadjusted quoted prices in active markets for identical assets or liabilities.

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

The carrying amounts of debt outstanding, if any, under the Company’s revolving credit facility and receivables facility approximate fair values as interest rates on these borrowings approximate current market rates.

The Company had no material investments in money market mutual funds as of March 31, 2022, or December 31, 2021.

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

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

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

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

(in thousands) Carrying

4 unchanged sentences

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

Retail Installment Contract Receivables, net - The fair value of the Company’s retail installment contract receivables was determined using a discounted cash flow model.

The resulting fair value is classified as a Level 3 fair value measurement.

Refer to Note 7 “Derivative Financial Instruments” for the fair values of the Company’s derivative financial instruments included in the Condensed Consolidated Balance Sheets.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Retail Installment Contract Receivables - The fair values of the Company’s retail installment contract receivables were determined using a discounted cash flow model.

The resulting fair values are classified as Level 3 fair value measurements.

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

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

(in thousands) Carrying

1 unchanged sentence

Retail installment contract receivables, net $ 384,345 $ 297,201 $ 330,605 $ 255,147

In the normal course of business, the Company is liable for contract completion and product performance.

The Company’s guarantees primarily relate to standby letters of credit related to its insurance programs and totaled $ 76 million and $ 83 million as of September 30, 2021 and December 31, 2020, respectively.

The Company does not believe such obligations will materially affect its financial position, results of operations, or cash flows.

Recently Adopted Accounting Pronouncements

Financial Accounting Standards Board Accounting Standards Update (“ASU”) 2020-06, Debt with Conversion and Other Options and Derivatives and Hedging - Contracts in Entity’s Own Equity , provides guidance to ease the potential burden of accounting for convertible instruments, derivatives related to an entity’s own equity, and the related earnings per share considerations.

The Company early adopted the guidance as of January 1, 2021.

The impact from adoption was not material.

ASU 2021-01, Reference Rate Reform (Topic 848) :

Facilitation of the Effects of Reference Rate Reform on Financial Reporting, amends ASU 2020-04 and clarifies the scope and guidance of Topic 848 to allow derivatives impacted by the reference rate reform to qualify for certain optional expedients and exceptions for contract modifications and hedge accounting.

The guidance is optional and is effective for a limited period of time through December 31, 2022.

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

However, the Company will continue to evaluate this guidance.

Recently Issued Accounting Pronouncements

ASU 2021-08, Business Combinations:

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

This guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.

The Company is currently evaluating the impact of the guidance.

Subsequent Event - Canopy Investment

In April 2022, the Company closed on its previously announced transaction with Ford Motor Company (“Ford”) to form 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.

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

As part of the initial funding at closing, the Company’s initial contribution totaled approximately $ 11 million.

REVENUE AND RECEIVABLES

The Company generates revenue primarily through contractual monthly recurring fees received for monitoring and related services provided to customers.

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

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

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

The following table presents the Company’s disaggregated revenue:

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

Three Months Ended March 31,

(in thousands) 2022 2021

Monitoring and related services $ 993,028 $ 951,248

Installation and other 59,790 119,895 204,561 459,259

Installation, product, and other 69,561 87,357

Total CSB 1,062,589 1,038,605

Monitoring and related services 128,268 111,518

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

Installation, product, and other 161,909 154,581

Total Commercial 290,177 266,099

Installation, product, and other 191,981 —

Total Solar 191,981 —

Total revenue $ 1,544,747 $ 1,304,704

1 unchanged sentence

Amounts collected from customers for sales and other taxes are reported as a liability net of the related amounts remitted.

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

Contract termination charges are recognized in revenue when collectability is probable and are reflected in monitoring and related services revenue in the Condensed Consolidated Statements of Operations.

Company-Owned - In transactions in which the Company provides monitoring and related services but retains ownership of the security system (referred to as Company-owned transactions), the Company’s performance obligations primarily include monitoring and related services, as well as a material right associated with the one-time non-refundable fees in connection with the initiation of a monitoring contract which the customer will not be required to pay again upon a renewal of the contract (referred to as deferred subscriber acquisition revenue).

The portion of the transaction price associated with monitoring and related services is recognized when the services are provided to the customer and is reflected in monitoring and related services revenue in the Condensed Consolidated Statements of Operations.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Contract termination charges are assessed in accordance with the terms of the contract when customers terminate a contract early and are recognized in monitoring and related services revenue in the Condensed Consolidated Statements of Operations when collectability is probable.

Company-Owned - In transactions in which the Company provides monitoring and related services but retains ownership of the security system (referred to as Company-owned transactions), the Company’s performance obligations primarily include (i) monitoring and related services and (ii) a material right associated with the one-time non-refundable fees in connection with the initiation of a monitoring contract which the customer will not be required to pay again upon a renewal of the contract (referred to as deferred subscriber acquisition revenue).

Since March 2021, substantially all new CSB transactions have taken place under a Company-owned model.

The portion of the transaction price associated with monitoring and related services is recognized when these services are provided to the customer and is reflected in monitoring and related services revenue in the Condensed Consolidated Statements of Operations.

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

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

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

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

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

Three Months Ended March 31,

( in thousands )

2021 2020 2021 2020

Amortization of deferred subscriber acquisition revenue $ 53,423 $ 37,159

Customer-Owned - In transactions involving systems sold outright to the customer (referred to as outright sales), the Company’s performance obligations generally include the sale and installation of the system as well as any monitoring and related services.

The portion of the transaction price associated with the sale and installation of a system is recognized either at a point in time or over time based upon the nature of the transaction and contractual terms and is reflected in installation and other revenue in the Condensed Consolidated Statements of Operations.

Customer-Owned - In transactions involving security systems sold outright to the customer (referred to as outright sales), the Company’s performance obligations generally include the sale and installation of the system and any monitoring and related services.

The portion of the transaction price associated with the sale and installation of a system is recognized either at a point in time or over time based upon the nature of the transaction and contractual terms and is reflected in installation, product, and other revenue in the Condensed Consolidated Statements of Operations.

For revenue recognized over time, progress toward complete satisfaction of the performance obligation is primarily measured using a cost-to-cost measure of progress method.

The cost input driving revenue recognition for contracts where revenue is recognized over time is based primarily on contract cost incurred to date compared to total estimated contract cost.

The cost input driving revenue recognition for these contracts is based primarily on contract cost incurred to date compared to total estimated contract cost.

This measure of progress method includes forecasts based on the best information available and reflects the Company’s judgment to faithfully depict the value of the services transferred to the customer.

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

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

The portion of the transaction price associated with monitoring and related services is recognized when services are provided to the customer and is reflected in monitoring and related services revenue in the Condensed Consolidated Statements of Operations.

Revenue and cost of revenue from products in outright sales were as follows:

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

Solar - In transactions within our Solar business, the Company’s performance obligations generally include the sale and installation of a solar system, and may also include additional performance obligations such as roofing services or the sale and installation of additional products such as batteries.

Revenue is recognized when control over the products and services are transferred to the customer and is reflected in installation, product, and other revenue in the Condensed Consolidated Statements of Operations.

The Company also enters into agreements with third-party lenders in order to access loan products for the Company’s Solar customers.

These lenders have the exclusive right to determine if a loan application will be accepted or rejected, and the Company is not a party to the loan agreement.

There are no guarantees related to the repayment of the loan, and as such, there is no liability associated with these arrangements.

These lenders remit the loan amount, net of fees related to obtaining favorable interest rates for customers, to the Company once the loan is approved or upon installation.

These fees are recorded as a reduction of installation, product, and other revenue and were approximately $ 38 million during the three months ended March 31, 2022.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Product Sales

Revenue and cost of revenue from product and system sales included in the Condensed Consolidated Statements of Operations were as follows:

Three Months Ended March 31,

( in thousands )

2021 2020 2021 2020

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

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

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

These fees are recorded as current deferred revenue in the Condensed Consolidated Balance Sheets as the Company expects to satisfy any remaining performance obligations, as well as recognize the related revenue, within the next twelve months.

Installation, product, and other $ 300,850 $ 202,746

Cost of revenue (exclusive of depreciation and amortization shown separately below) $ 220,565 $ 160,186

Deferred Revenue

Deferred revenue represents customer billings for services not yet rendered and is primarily related to recurring monitoring and related services.

In addition, payments received for the sale and installation of a system after the agreement is signed but before performance obligations are satisfied are recorded as deferred revenue.

These amounts are recorded as current deferred revenue in the Condensed Consolidated Balance Sheets as the Company expects to satisfy any remaining performance obligations, as well as recognize the related revenue, within the next twelve months when performance obligations are satisfied.

Accordingly, the Company has applied the practical expedient regarding deferred revenue to exclude the value of remaining performance obligations if (i) the contract has an original expected term of one year or less or (ii) the Company recognizes revenue in proportion to the amount it has the right to invoice for services performed.

Revenue Model Initiative and Equipment Ownership Model Change

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

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

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

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

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

Refer to Note 6 “Debt” for further discussion regarding the Receivables Facility.

Receivables and Contract Assets

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

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

Accounts Receivable

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

The Company’s accounts receivable are recorded at amortized cost less an allowance for credit losses not expected to be recovered.

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

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

2 unchanged sentences

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

Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands) 2022 2021

5 unchanged sentences

________________

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

The impact of adoption was not material.

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

Retail Installment Contract Receivables, net

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

(1) Recoveries were not material for the periods presented.

As such, the Company presented write-offs, net of recoveries.

Retail Installment Contract Receivables

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

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

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

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

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

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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

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

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

As of March 31, 2022, the current and delinquent billed retail installment contract receivables were not material.

Unbilled retail installment contract receivables reflected in the Condensed Consolidated Balance Sheets includes:

(in thousands) March 31, 2022 December 31, 2021

Retail installment contract receivables, gross $ 385,086 $ 331,512

5 unchanged sentences

Retail installment contract receivables, net $ 384,345 $ 330,605

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

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

Contract Assets, net

As of March 31, 2022 and December 31, 2021, retail installment contract receivables, net, used as collateral for borrowings under the Company’s uncommitted receivables securitization financing agreement (the “Receivables Facility”) were $ 341 million and $ 299 million, respectively.

Refer to Note 6 “Debt” for further discussion regarding the Receivables Facility.

Contract Assets

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

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

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

The Company has the right to bill customers as services are provided over time, which generally occurs over the course of a 24-, 36-, or 60-month period.

The financing component of contract assets is not significant.

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

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

The Company records an allowance for credit losses against its contract assets for amounts not expected to be recovered.

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

The allowance for credit losses on contract assets was not material for the periods presented.

Contract assets for residential transactions reflected in the Condensed Consolidated Balance Sheets includes:

(in thousands) March 31, 2022 December 31, 2021

Contract assets, gross $ 90,038 $ 106,810

5 unchanged sentences

Contract assets, net $ 80,757 $ 94,510

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

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

Company as Lessor

The Company is a lessor in certain Company-owned transactions as the Company has identified a lease component associated with the right-of-use of the security system and a non-lease component associated with the monitoring and related services.

For transactions in which (i) the timing and pattern of transfer is the same for the lease and non-lease components and (ii) the lease component would be classified as an operating lease if accounted for separately, the Company applies the practical expedient to aggregate the lease and non-lease components and accounts for the combined transaction based upon its predominant characteristic, which is the non-lease component.

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

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

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

Company as Lessee

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

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

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

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

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

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

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

Lease payments that are neither fixed nor dependent on an index or rate and vary because of changes in usage or other factors are included in variable lease costs.

Variable lease costs are recorded in the period in which the obligation is incurred and primarily relate to fuel, repair, and maintenance payments as they vary based on the usage of leased vehicles.

The Company’s leases do not contain material residual value guarantees or restrictive covenants.

The Company’s subleases are not material.

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

Presentation Classification September 30, 2021 December 31, 2020

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

Operating Non-current Other assets 122,088 138,408

Finance Non-current Property and equipment, net (1)

69,507 54,414

Total right-of-use assets $ 191,900 $ 193,506

Operating Current Accrued expenses and other current liabilities $ 33,085 $ 30,689

Finance Current Current maturities of long-term debt 35,437 26,955

Operating Non-current Other liabilities 99,474 115,694

Finance Non-current Long-term debt 39,049 34,373

Total lease liabilities $ 207,045 $ 207,711

_________________

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

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

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

During the three months ended March 31, 2022 and 2021, contract assets recognized were not material.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEGMENT INFORMATION

As discussed in Note 1 “Description of Business and Summary of Significant Accounting Policies,” the Company reports results in three operating and reportable segments based on the manner in which the CODM evaluates performance and makes decisions about how to allocate resources.

The Company organizes its segments based 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 and automation systems, as well as other related offerings;

(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 and Solar segments.

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

• Commercial - The Commercial segment primarily includes (i) revenue and operating costs from the sale, installation, servicing, and monitoring of integrated security and automation systems, fire detection and suppression systems, and other related offerings;

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

and (iii) dedicated corporate costs and other income and expense items.

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

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

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

and (iii) dedicated corporate costs and other income and expense items.

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

The CODM uses Adjusted EBITDA, which is the segment profit measure, to evaluate segment performance.

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

(iii) depreciation and amortization, including depreciation of subscriber system assets and other fixed assets and amortization of dealer and other intangible assets;

(iv) amortization of deferred costs and deferred revenue associated with subscriber acquisitions;

(v) share-based compensation expense;

(vi) merger, restructuring, integration, and other;

(vii) losses on extinguishment of debt;

(viii) radio conversion costs, net;

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

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

therefore, such information is not presented.

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

Three Months Ended March 31,

(in thousands) 2022 2021

2021 2020 2021 2020

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

Finance lease cost:

Amortization of right-of-use assets 7,481 6,703 20,659 18,897

Interest on lease liabilities 707 778 2,083 2,393

Variable lease costs 20,448 10,803 53,580 34,952

Total lease cost $ 40,054 $ 32,623 $ 112,792 $ 99,493

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

Nine Months Ended September 30,

CSB $ 1,062,589 $ 1,038,605

Commercial 290,177 266,099

Solar 191,981 —

Total Revenue $ 1,544,747 $ 1,304,704

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Three Months Ended March 31,

(in thousands) 2022 2021

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

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

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

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

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

Operating lease liabilities $ 14,999 $ 40,015

Finance lease liabilities $ 36,465 $ 10,147

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

In January 2020, the Company acquired its largest independent dealer, Defender Holdings, Inc.

(“Defenders”) (the “Defenders Acquisition”) for total consideration of approximately $ 290 million, which consisted of cash paid of $ 173 million, net of cash acquired, and the issuance of approximately 16 million shares of the Company’s Common Stock with a fair value of $ 114 million.

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

Subsequent Event - Sunpro Solar Acquisition

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

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

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

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

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

Adjusted EBITDA by segment:

CSB $ 560,545 $ 519,478

Commercial 23,630 22,653

Solar 16,822 —

Total $ 600,997 $ 542,131

Reconciliation to consolidated net income (loss) before taxes:

Total segment Adjusted EBITDA $ 600,997 $ 542,131

Interest expense, net 6,307 47,724

Depreciation and intangible asset amortization 476,123 469,809

Amortization of deferred subscriber acquisition costs 36,939 28,642

Amortization of deferred subscriber acquisition revenue ( 53,423 ) ( 37,159 )

Share-based compensation expense 16,020 16,019

Merger, restructuring, integration, and other 528 20,507

Loss on extinguishment of debt — 156

Radio conversion costs, net 9,940 58,729

Acquisition related adjustments (1)

36,295 ( 248 )

Other 1,099 409

Net income (loss) before taxes $ 71,169 $ ( 62,457 )

________________

(1) During 2022, primarily includes the amortization of the customer backlog intangible asset acquired in the ADT Solar Acquisition, which was fully amortized as of March 2022.

During the three months ended March 31, 2022, total consideration related to business acquisitions was not material.

ADT Solar Acquisition

In December 2021, the Company acquired ADT Solar, a leading solar installer in the U.S.

Total consideration was approximately $ 750 million, which consisted of cash paid of $ 142 million, net of cash acquired, and approximately 75 million unregistered shares of the Company’s common stock, par value of $ 0.01 per share, with a fair value of $ 569 million, including $ 40 million related to approximately 5 million shares of the Company’s common stock to be issued in various increments over the twelve-month period subsequent to the acquisition date.

The total fair value of $ 569 million was based on the closing stock price of the Company’s common stock on December 8, 2021, the acquisition date, adjusted for the impact of contractual restrictions on the ability for the holders to sell their shares.

There were no material adjustments to the preliminary purchase price allocation during the three months ended March 31, 2022.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

GOODWILL AND OTHER INTANGIBLE ASSETS

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

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

As discussed in Note 1 “Description of Business and Summary of Significant Accounting Policies,” effective in the first quarter of 2021, the Company’s operating and reportable segments are CSB, which is comprised of the CSB reporting unit, and Commercial, which is comprised of the Commercial reporting unit.

Both of the Company’s reporting units were previously included in a single operating and reportable segment.

The change in reportable segments did not further impact the Company’s reporting units.

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

Nine Months Ended September 30, 2021

(in thousands) CSB Commercial Total

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

Beginning balance, after change in reportable segments $ 4,915,857 $ 320,445 $ 5,236,302

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

(in thousands) CSB Commercial Solar Total

Balance as of December 31, 2021 $ 4,915,832 $ 332,845 $ 694,726 $ 5,943,403

Acquisitions (1)

Other ( 25 ) 1,902 1,877

Ending balance $ 4,915,832 $ 329,110 $ 5,244,942

— 180 8,906 9,086

N/A—Not applicable.

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

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

Reclassification to held for sale — ( 11,731 ) — ( 11,731 )

Balance as of March 31, 2022 $ 4,915,832 $ 321,294 $ 703,632 $ 5,940,758

________________

(1) Includes the impact of measurement period adjustments.

During the three months ended March 31, 2022, measurement period adjustments were not material.

The Company had no accumulated goodwill impairment losses as of March 31, 2022 or December 31, 2021.

Other Intangible Assets

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

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

(in thousands) Gross Carrying

12 unchanged sentences

Intangible assets $ 12,018,671 $ ( 6,733,007 ) $ 5,285,664 $ 11,833,516 $ ( 6,420,165 ) $ 5,413,351

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

(in thousands) Nine Months Ended September 30, 2021

Beginning balance $ 3,374,156

Acquisition of customer relationships 5,333

The change in the net carrying amount of contracts and related customer relationships during the period was as follows:

(in thousands)

Balance as of December 31, 2021 $ 2,966,018

Customer contract additions, net of dealer charge-backs (1)

Amortization ( 268,698 )

Ending balance $ 3,080,948

Other ( 1,338 )

Balance as of March 31, 2022 $ 2,893,587

________________

(1) The weighted-average amortization period for customer contract additions was 13 years.

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

In addition, contracts and related customer relationships includes the purchase of customer accounts from a third party in February 2021 for a total contractual purchase price of $ 91 million, subject to reduction based on customer retention.

The Company paid cash at closing of $ 73 million.

During the three months ended March 31, 2022, the Company paid $ 185 million related to customer contract additions under the ADT Authorized Dealer Program and from other third parties, which is included in dealer generated customer accounts and bulk account purchases on the Condensed Consolidated Statements of Cash Flows.

In addition, contracts and related customer relationships includes customer accounts purchased from certain other third parties during the three months ended March 31, 2022 for an aggregate contractual purchase price of $ 68 million, subject to reduction based on customer retention.

The Company paid initial cash at the closings in the aggregate amount of $ 55 million, which is included in the payments for dealer generated customer accounts and bulk account purchases described above.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

Three Months Ended March 31,

(in thousands) 2022 2021

Definite-lived intangible asset amortization expense $ 291,947 $ 299,327

Intangible Asset Impairments

During the first quarter of 2021, the Company recognized $ 18 million in impairment losses on its other definite-lived intangible assets primarily due to lower than expected benefits from the Cell Bounce developed technology intangible asset, which is included in the CSB segment, as a result of the worldwide shortages for certain electronic components.

The fair value was determined using an income-based approach, and the loss is reflected in merger, restructuring, integration, and other in the Condensed Consolidated Statements of Operations.

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

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

The Company’s debt is comprised of the following (in thousands, except as otherwise indicated) :

Description Issued Maturity Interest Rate Interest Payable March 31, 2022 December 31, 2021

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

LIBOR +2.75% Quarterly $ 2,765,006 $ 2,778,900

LIBOR + 2.75 %

Quarterly $ 2,751,111 $ 2,758,058

First Lien Revolving Credit Facility 3/16/2018 6/23/2026 Adj.

LIBOR + 2.75 %

Quarterly 170,000 25,000

Second Lien Notes due 2028 1/28/2020 1/15/2028 6.250 % 1/15 and 7/15 1,300,000 1,300,000

6 unchanged sentences

ADT Notes due 2042 7/5/2012 7/15/2042 4.875 % 1/15 and 7/15 21,896 21,896

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

Finance lease obligations (1)

Receivables Facility 3/5/2020 2/20/2027 LIBOR + 0.85 %

Monthly 224,976 199,056

Other debt (1)

Total debt principal, excluding finance leases 10,000,112 9,836,758

Finance lease liabilities (2)

90,316 93,080

6 unchanged sentences

_________________

(1) Other debt includes vehicle loans attributable to ADT Solar and were not material during the periods presented.

(2) Refer to Note 13 “Leases” for additional information regarding the Company’s finance leases.

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

Significant changes in the Company’s debt during the three months ended March 31, 2022 were as follows:

First Lien Credit Agreement

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

In January 2021, the Company amended and restated its First Lien Credit Agreement to refinance the First Lien Term Loan due 2026, which reduced the applicable margin for Adjusted London Interbank Offered Rate (“LIBOR”) loans from 3.25 % to 2.75 % and reduced the LIBOR floor from 1.00 % to 0.75 %.

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

The Company may make voluntary prepayments at any time prior to maturity at par, subject to a 1.00 % prepayment premium in the event of certain specified events at any time during the six months after the closing date of the amendment.

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

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

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

First Lien Notes due 2029

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

The related deferred financing costs were not material.

The First Lien Notes due 2029 will mature on August 1, 2029, with semi-annual interest payment dates of February 1 and August 1 of each year, beginning February 1, 2022, and may be redeemed at the Company’s option as follows:

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

• On or after August 1, 2028, in whole at any time or in part from time to time, at a redemption price equal to 100 % of the principal amount of the First Lien Notes due 2029 to be redeemed and accrued and unpaid interest as of, but excluding, the redemption date.

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

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

The indenture also provides for customary events of default.

ADT Notes due 2022 Redemption

In August 2021, the Company used the proceeds from the First Lien Notes due 2029, along with cash on hand, to (i) redeem all of the $ 1.0 billion outstanding aggregate principal amount of the Company’s 3.50 % notes due 2022 (the “ADT Notes due 2022”) for approximately $ 1.0 billion, including the related call premium of $ 28 million, plus accrued and unpaid interest, and (ii) pay related fees and expenses (the “ADT Notes due 2022 Redemption”).

As of March 31, 2022 and December 31, 2021, the Company had $ 405 million and $ 550 million, respectively, in available borrowing capacity under the First Lien Revolving Credit Facility.

During the three months ended March 31, 2021, the Company borrowed $ 280 million and repaid $ 135 million under its First Lien Revolving Credit Facility.

Loss on Extinguishment of Debt

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

During the nine months ended September 30, 2020, loss on extinguishment of debt totaled $ 115 million and included (i) $ 66 million related to the call premium and write-off of unamortized deferred financing costs in connection with the $ 1.2 billion redemption of the Company’s second-priority secured notes in February 2020 and (ii) $ 49 million related to the call premium and write-off of unamortized fair value adjustments in connection with the $ 1.0 billion redemption of the Company’s 6.25% notes due 2021 in September 2020.

Loss on extinguishment of debt was not material during the three months ended March 31, 2022 or 2021.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Receivables Facility

The Company obtains financing by selling or contributing certain retail installment contract receivables to the Company’s wholly-owned consolidated bankruptcy-remote special purpose entity (“SPE”).

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

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

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

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

The SPE borrower under the Receivables Facility is a separate legal entity with its own creditors who will be entitled, prior to and upon the liquidation of the SPE, to be satisfied out of the SPE’s assets prior to any assets of the SPE becoming available to the Company (other than the SPE).

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

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

Under the Receivables Facility, the Company obtains financing by selling or contributing certain retail installment contract receivables to the Company’s wholly-owned consolidated bankruptcy-remote special purpose entity (“SPE”), which then grants a security interest in those retail installment contract receivables as collateral for cash borrowings.

The Receivables Facility permits up to $ 400 million of uncommitted financing secured by the Company’s retail installment contract receivables owned by the SPE and has a scheduled termination date for the uncommitted revolving period of October 2022.

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

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

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

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

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

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

Subsequent Event:

Amendment to the Receivables Facility

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

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

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

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

During the three months ended March 31, 2022, the Company received proceeds of $ 47 million under the Receivables Facility and repaid $ 21 million, which are reflected as cash flows from financing activities in the Condensed Consolidated Statements of Cash Flows.

As of March 31, 2022 and December 31, 2021, the Company had an uncommitted available borrowing capacity under the Receivables Facility of $ 175 million and $ 201 million, respectively.

The Receivables Facility did not have a material impact to the Condensed Consolidated Statements of Operations during the three months ended March 31, 2022 and 2021.

Variable Interest Entity

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

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

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

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

As of March 31, 2022 and December 31, 2021, the SPE’s assets and liabilities primarily consisted of unbilled retail installment contract receivables, net, as discussed in Note 2 “Revenue and Receivables,” of $ 341 million and $ 299 million, respectively, and borrowings under the Receivables Facility, as presented above.

SOFR Transition

By June 2023, LIBOR will be replaced with the Secured Overnight Financing Rate (“SOFR”) (the “SOFR Transition Date”), at which point the applicable benchmark for all existing and new issuances with a variable rate debt component will be based on SOFR.

The First Lien Term Loan due 2026 and First Lien Revolving Credit Facility are and will continue to be based on LIBOR until the SOFR Transition Date.

However, any modification, such as a repricing entered into after December 31, 2021, will require transition to SOFR.

Additionally, any new issuances with a variable rate debt component entered into after December 31, 2021 will utilize SOFR per the terms of the credit agreement.

In April 2022, the Receivables Facility was amended to provide for an interim early transition to SOFR for the period beginning April 2022.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DERIVATIVE FINANCIAL INSTRUMENTS

1 unchanged sentence

All interest rate swap contracts are reported in the Condensed Consolidated Balance Sheets at fair value.

For interest rate swap contracts not designated as cash flow hedges, unrealized gains and losses are recognized in interest expense, net, in the Condensed Consolidated Statements of Operations.

For interest rate swap contracts designated as cash flow hedges, unrealized gains and losses are recognized as a component of accumulated other comprehensive income (loss) (“AOCI”) in the Condensed Consolidated Balance Sheets and are reclassified into interest expense, net, in the same period in which the related interest on debt affects earnings.

For interest rate swap contracts that have been de-designated as cash flow hedges and for which the forecasted cash flows are probable or reasonably possible of occurring, unrealized gains and losses previously recognized as a component of AOCI are reclassified into interest expense, net, in the same period in which the related interest on variable-rate debt affects earnings through the original maturity date of the related interest rate swap contracts.

For interest rate swap contracts that have been de-designated as cash flow hedges and for which the forecasted cash flows are probable of not occurring, unrealized gains and losses previously recognized as a component of AOCI are immediately reclassified into interest expense, net.

For interest rate swap contracts that are:

• Not designated as cash flow hedges:

Unrealized gains and losses are recognized in interest expense, net, in the Condensed Consolidated Statements of Operations.

• Designated as cash flow hedges:

Unrealized gains and losses are recognized as a component of accumulated other comprehensive income (loss) (“AOCI”) in the Condensed Consolidated Balance Sheets and are reclassified into interest expense, net, in the same period in which the related interest on debt affects earnings.

For interest rate swap contracts that have been de-designated as cash flow hedges and for which forecasted cash flows are:

• Probable or reasonably possible of occurring:

Unrealized gains and losses previously recognized as a component of AOCI are reclassified into interest expense, net, in the same period in which the related interest on variable-rate debt affects earnings through the original maturity date of the related interest rate swap contracts.

• Probable of not occurring:

Unrealized gains and losses previously recognized as a component of AOCI are immediately reclassified into interest expense, net.

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

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

Beginning in March 2020, the Company de-designated interest rate swap contracts previously designated as cash flow hedges with an aggregate notional amount of $ 3.0 billion.

As the forecasted cash flows are probable or reasonably possible of occurring, unrealized losses previously recognized as a component of AOCI are reclassified into interest expense, net.

The Company’s interest rate swaps as of March 31, 2022 and December 31, 2021 consisted of the following (in thousands) :

Execution Maturity Designation Notional Amount

3 unchanged sentences

Total notional amount $ 3,225,000

As a result of changes in the interest rate environment during 2020, the Company's interest rate swap contracts previously designated as cash flow hedges with an aggregate notional amount of $ 3.0 billion were no longer highly effective beginning in March 2020.

Accordingly, the Company de-designated the cash flow hedges, and the unrealized gains and losses for the periods in which these cash flow hedges were no longer highly effective were recognized in interest expense, net.

As the forecasted cash flows are probable or reasonably possible of occurring, unrealized losses previously recognized as a component of AOCI prior to de-designation will be reclassified into interest expense, net, in the same period in which the related interest on variable-rate debt affects earnings through the maturity dates of the interest rate swap contracts.

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

(in thousands) March 31, 2022 December 31, 2021

Other assets $ 40,948 $ —

Accrued expenses and other current liabilities 13,995 50,360

Other liabilities — 67,976

Fair value of interest rate swaps - net asset $ 26,953 $ —

Fair value of interest rate swaps - net liability $ — $ 118,336

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

Three Months Ended March 31,

( in thousands )

2021 2020 2021 2020

Unrealized gain (loss) on interest rate swaps $ 145,289 $ 106,517

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

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

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

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

Other liabilities 99,600 210,378

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

As of September 30, 2021 and December 31, 2020, AOCI, net of tax, related to cash flow hedges was $ 83 million and $ 118 million, respectively.

The Company has two classes of common stock, Common Stock and Class B Common Stock, both of which entitle stockholders to one vote per share.

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

Three Months Ended March 31,

( in thousands )

Reclassifications to interest expense $ 14,620 $ 15,416

Reclassifications to income tax benefit $ ( 3,528 ) $ ( 3,750 )

As of March 31, 2022 and December 31, 2021, AOCI, net of tax, related to previously designated cash flow hedges was $ 60 million and $ 71 million, respectively.

As of March 31, 2022, approximately $ 25 million of AOCI associated with previously designated cash flow hedges is estimated to be reclassified to interest expense, net, within the next twelve months.

During the three months ended March 31, 2022 and 2021, the Company paid $ 13 million and $ 14 million, respectively, related to settlements on interest rate swap contracts that included an other-than-insignificant financing element at inception.

Unrecognized Tax Benefits

The Company’s unrecognized tax benefits relate to tax years that remain subject to audit by the taxing authorities in the U.S.

federal, state and local, and foreign jurisdictions.

During the three months ended March 31, 2022, the Company did not have a material change to its unrecognized tax benefits.

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

Effective Tax Rate

The effective tax rate can vary from period to period due to permanent tax adjustments, discrete items such as the settlement of income tax audits and changes in tax laws, as well as recurring factors such as changes in the overall state tax rate.

The Company’s income tax expense for the three months ended March 31, 2022 was $ 20 million, resulting in an effective tax rate for the period of 27.4 %.

The effective tax rate primarily represents the federal statutory rate of 21.0 %, a state statutory tax rate, net of federal benefits, of 6.7 %, and a 2.6 % favorable impact of share-based compensation, offset by a 2.7 % unfavorable impact of permanent items.

The Company’s income tax benefit for the three months ended March 31, 2021 was $ 15 million, resulting in an effective tax rate for the period of 23.3 %.

The effective tax rate primarily represents the federal statutory rate of 21.0 %, a state statutory tax rate, net of federal benefits, of 2.8 %, and a 2.8 % favorable impact of share-based compensation, partially offset by a 1.6 % unfavorable impact of state legislative changes.

COVID-19 Pandemic

In response to the COVID-19 Pandemic, the American Rescue Plan Act of 2021 and the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) were signed into law in March 2021 and March 2020, respectively, and included significant corporate income tax and payroll tax provisions intended to provide economic relief to address the impact of the COVID-19 Pandemic.

During 2020, the Company recognized favorable cash flow impacts related to the accelerated refund of previously generated alternative minimum tax credits, as well as from the deferral of remittance of certain 2020 payroll taxes, with 50 % of the deferred amount due by the end of 2021, and the remainder due by the end of 2022.

The Company also recognized a benefit from an increase in the interest expense limitation from 30 % to 50 % for tax years 2019 and 2020.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Delayed Effective Dates for Tax Law Changes under the Tax Cuts and Jobs Act

Certain changes to U.S.

federal tax law included in the Tax Cuts and Jobs Act had a delayed effective date and have taken effect for tax years beginning after December 31, 2021.

These changes include a limitation on net business interest expense deductions under Internal Revenue Code (“IRC”) Section 163(j) no longer being increased by deductions for depreciation, amortization or depletion, and, under IRC Section 174, specified research and experimentation expenditures being capitalized and amortized.

Common Stock and Class B Common Stock

The Company has two classes of common stock, including common stock (“Common Stock”) and Class B common stock (“Class B Common Stock”), both of which entitle stockholders to one vote per share except as described below.

The Company’s Common Stock trades on the New York Stock Exchange under the symbol “ADT” since the Company’s initial public offering in January 2018.

Class B Common Stock was issued in September 2020 to Google LLC (“Google”) in a private placement pursuant to a securities purchase agreement dated July 31, 2020 (the “Securities Purchase Agreement”).

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

4 unchanged sentences

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

Nine Months Ended September 30, 2021

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

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

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

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

Nine Months Ended September 30, 2020

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

Three Months Ended March 31, 2022

3/1/2022 3/17/2022 4/4/2022 $ 0.035 $ 29,842 $ 0.035 $ 1,916

Three Months Ended March 31, 2021

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

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

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

Other Share Activity

In February 2019, the Company approved a dividend reinvestment plan (the “DRIP”), which allowed stockholders to designate all or a portion of the cash dividends on their shares of common stock for reinvestment in additional shares of the Company’s Common Stock.

The DRIP terminated in accordance with its terms on February 27, 2021.

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

In February 2019, the Company approved a share repurchase program (the “Share Repurchase Program”), which authorized the Company to repurchase shares of the Company’s Common Stock (up to a certain amount).

The Share Repurchase Program terminated in accordance with its terms on March 23, 2021.

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

Subsequent Event - On May 5, 2022, the Company announced a dividend of $ 0.035 per share to holders of Common Stock and Class B Common Stock of record on June 16, 2022, which will be distributed on July 5, 2022.

Accumulated Other Comprehensive Income (Loss)

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

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

( in thousands )

2021 2020 2021 2020

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

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

As of September 30, 2021, approximately $ 44 million of AOCI associated with cash flow hedges is estimated to be reclassified to interest expense, net, within the next twelve months.

There were no material reclassifications out of AOCI.

Refer to Note 7 “Derivative Financial Instruments” for AOCI reclassifications associated with cash flow hedges.

SHARE-BASED COMPENSATION

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

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

Share-Based Compensation Expense

Share-based compensation expense recognized in selling, general, and administrative expenses in the Condensed Consolidated Statements of Operations was as follows:

Three Months Ended March 31,

( in thousands )

2021 2020 2021 2020

Share-based compensation expense $ 16,020 $ 16,019

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Restricted Stock Units

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

These RSUs are service-based awards, primarily with a three-year graded vesting period from the date of grant.

During the three months ended March 31, 2022, the Company granted approximately 6.2 million restricted stock units (“RSUs”) under its 2018 Omnibus Incentive Plan, as amended (the “2018 Plan”).

These RSUs are service-based awards with a three-year graded vesting period from the date of grant.

The fair value of the RSUs is equal to the closing price per share of the Company’s Common Stock on the date of grant, which resulted in a weighted-average grant date fair value of $ 7.88 .

1 unchanged sentence

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

Net (Loss) Income Per Share

The Company applies the two-class method for computing and presenting net (loss) income per share for each class of common stock, which allocates current period net (loss) income to each class of common stock and participating securities based on (i) dividends declared and (ii) participation rights in the remaining undistributed (losses) earnings.

Basic net (loss) income per share is computed by dividing the net (loss) income allocated to each class of common stock by the related weighted-average number of shares outstanding during the period.

Diluted net (loss) income per share gives effect to all securities representing potential common shares that were dilutive and outstanding during the period for each class of common stock.

NET INCOME (LOSS) PER SHARE

The Company applies the two-class method for computing and presenting net income (loss) per share for each class of common stock, which allocates current period net income (loss) to each class of common stock and participating securities based on (i) dividends declared and (ii) participation rights in the remaining undistributed earnings (losses).

Basic net income (loss) per share is computed by dividing the net income (loss) allocated to each class of common stock by the related weighted-average number of shares outstanding during the period.

In addition, basic weighted-average shares outstanding for the three months ended March 31, 2022 includes approximately 5 million shares of Common Stock to be issued in various increments throughout 2022 in connection with the ADT Solar Acquisition.

Diluted net income (loss) per share gives effect to all securities representing potential common shares that were dilutive and outstanding during the period for each class of common stock.

Potential shares of Common Stock include (i) incremental shares of Common Stock calculated using the treasury stock method for share-based compensation awards, (ii) incremental shares of Common Stock issuable upon the conversion of Class B Common Stock, and (iii) incremental shares of Common Stock calculated using the treasury stock method for warrants to purchase additional shares of Common Stock issued in connection with a business combination.

For purposes of the diluted net (loss) income per share of Common Stock computation, all potential shares of Common Stock that would be dilutive were excluded because their effect would be anti-dilutive.

As a result, basic net (loss) income per share of Common Stock is equal to diluted net (loss) income per share of Common Stock for the periods presented.

During the three and nine months ended September 30, 2020, potential shares of Class B Common Stock included (i) incremental shares of Class B Common Stock calculated using the treasury stock method for the period in which the Securities Purchase Agreement was outstanding prior to closing and (ii) incremental shares of Class B Common Stock calculated using the treasury stock method for Google’s option to purchase additional shares of Class B Common Stock prior to closing.

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

Three Months Ended September 30,

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

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

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

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

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

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

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

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

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

Nine Months Ended September 30,

There were no potential shares of Class B Common Stock during the periods presented.

For the three months ended March 31, 2022, the computation of diluted earnings per share for Common Stock excludes potentially dilutive securities whose effect would have been anti-dilutive in the amounts of approximately 17 million shares from share-based compensation awards and approximately 0.1 million warrants to purchase additional shares of Common Stock.

Approximately 9 million unvested shares are excluded from the basic and diluted earnings per share computations, as their vesting is contingent upon achievement of certain performance requirements, which have not been met as of March 31, 2022.

The computations of basic and diluted net income (loss) per share under the two-class method for each class of common stock are as follows:

Three Months Ended March 31,

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

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

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

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

Allocation of net income (loss) - basic $ 48,510 $ 3,135 $ ( 44,673 ) $ ( 3,221 )

Dilutive effect 2,001 ( 85 ) — —

Allocation of net income (loss) - diluted $ 50,511 $ 3,050 $ ( 44,673 ) $ ( 3,221 )

Weighted-average shares outstanding - basic 843,830 54,745 762,704 54,745

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

Dilutive effect 67,483 — — —

Weighted-average shares outstanding - diluted 911,313 54,745 762,704 54,745

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

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

Unrecognized Tax Benefits

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

The Company’s unrecognized tax benefits relate to tax years that remain subject to audit by the taxing authorities in the U.S.

federal, state and local, and foreign jurisdictions.

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

Effective Tax Rate

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

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

Income tax benefit for the three months ended September 30, 2020 was $ 28 million, resulting in an effective tax rate for the period of 19.7 %.

The effective tax rate primarily represents the federal statutory rate of 21.0 %, a state statutory tax rate, net of federal benefits, of 2.5 %, and a 3.9 % unfavorable impact from non-deductible charges primarily due to the Defenders Acquisition.

The Company’s income tax benefit for the nine months ended September 30, 2021 was $ 92 million, resulting in an effective tax rate for the period of 24.6 %.

The effective tax rate primarily represents the federal statutory rate of 21.0 %, a state statutory tax rate, net of federal benefits, of 2.9 %, and a 0.6 % favorable impact of share-based compensation.

Income tax benefit for the nine months ended September 30, 2020 was $ 133 million, resulting in an effective tax rate for the period of 20.4 %.

The effective tax rate primarily represents the federal statutory tax rate of 21.0 %, a state statutory tax rate, net of federal benefits, of 2.9 %, a 3.0 % unfavorable impact from non-deductible charges primarily due to the Defenders Acquisition, and a 1.2 % unfavorable impact from an increase in valuation allowances primarily due to tax credits not expected to be utilized prior to expiration.

COVID-19 Pandemic

In response to the COVID-19 Pandemic, the American Rescue Plan Act of 2021 (the “2021 Rescue Act”) and the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) were signed into law in March 2021 and March 2020, respectively, and included significant corporate income tax and payroll tax provisions intended to provide economic relief to address the impact of the COVID-19 Pandemic.

During 2020, the Company recognized favorable cash flow impacts related to the accelerated refund of previously generated alternative minimum tax credits, as well as from the deferral of remittance of certain 2020 payroll taxes, with 50% of the deferred amount due by the end of 2021, and the remainder due by the end of 2022.

The Company also recognized a benefit from an increase in the interest expense limitation from 30% to 50% for tax years 2019 and 2020.

In connection with the 2021 Rescue Act, the Company noted risks of an unfavorable impact to the Company’s future results of operations and cash flows due to revised Internal Revenue Code Section 162(m) limits on the deduction for executive compensation, effective in tax years after 2026.

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

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

In addition, states have begun proposing and enacting legislation to address the unfavorable financial impacts of the COVID-19 Pandemic, which includes tax rate changes, decoupling from favorable federal legislation under the CARES Act (such as an increased interest expense limitation from 30% to 50%), and limiting the use of net operating losses.

The Company expects the trend to continue through the remainder of 2021, and these changes could have material impacts to the Company’s results of operations and cash flows.

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

Net income (loss) per share - basic $ 0.06 $ 0.06 $ ( 0.06 ) $ ( 0.06 )

Net income (loss) per share - diluted $ 0.06 $ 0.06 $ ( 0.06 ) $ ( 0.06 )

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

COMMITMENTS AND CONTINGENCIES

Contractual Obligations

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

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

There have been no material changes to the Company’s contractual obligations as compared to December 31, 2021, except as discussed below:

Google Commercial Agreement

The Company and Google entered into a Master Supply, Distribution, and Marketing Agreement (the “Google Commercial Agreement”), pursuant to which Google has agreed to supply the Company with certain Google devices as well as certain Google video and analytics services (“Google Devices and Services”), for sale to the Company’s customers.

Subject to customary termination rights related to breach and change of control, the Google Commercial Agreement has an initial term of seven years from the date that the Google Devices and Services are successfully integrated into the Company’s end-user security and automation platform.

Further, subject to certain carve-outs, the Company has agreed to exclusively sell Google Devices and Services to its customers.

If the integrated Google Devices and Services are not launched by June 30, 2022, Google has the contractual right to require the Company, with certain exceptions, to exclusively offer the Google Devices and Services without integration for all new professional installations and for existing customers who do not have ADT Pulse or ADT Control interactive services, until such integration has been made.

The Company has already begun providing Google video services and devices and will continue to do so on a non-integrated basis as of June 30, 2022, and is working closely with Google toward an integrated solution.

Other Obligations

In 2021, the Company entered into agreements for potential future customer account purchases from two distinct third parties, assuming certain conditions are met, over the course of those agreements.

As of March 31, 2022, remaining commitments for those potential future customer account purchases could total approximately $ 33 million through January 2023.

In the normal course of business, the Company is liable for contract completion and product performance.

The Company’s guarantees primarily relate to standby letters of credit related to its insurance programs and totaled $ 86 million and $ 76 million as of March 31, 2022 and December 31, 2021, respectively.

The Company does not believe such obligations will materially affect its financial position, results of operations, or cash flows.

During March 2022, the Company entered into an unsecured Credit Agreement with Goldman Sachs Mortgage Company, as administrative agent and issuing lender (the “Issuing Lender”), together with other lenders party thereto, pursuant to which the Company may request the Issuing Lender to issue one or more letters of credit for its own account or the account of its subsidiaries, in an aggregate face amount not to exceed $ 75 million at any one time.

Legal Proceedings

8 unchanged sentences

In connection with such formal and informal inquiries, the Company receives numerous requests, subpoenas, and orders for documents, testimony, and information in connection with various aspects of its activities.

There have been no material changes to these matters from those disclosed in the 2021 Annual Report except as described below.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company records accruals for losses that are probable and reasonably estimable.

1 unchanged sentence

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

Additionally, the Company records insurance recovery

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

The Company’s accrual for ongoing claims and lawsuits not within scope of an insurance program was not material, and in most cases, the Company has not accrued for any losses as the ultimate outcome or the range of possible loss cannot be estimated.

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

Environmental Matters

In October 2013, the Company was notified by subpoena that the Office of the Attorney General of California, in conjunction with the Alameda County District Attorney, is investigating whether the Company’s electronic waste disposal policies, procedures, and practices are in violation of the California Business and Professions Code and the California Health and Safety Code.

During 2016, Protection One, Inc.

was also notified by the same parties that it was subject to a similar investigation.

The investigations have been inactive since December 2016 other than a status conference conducted in May 2019.

The Company is coordinating joint handling of both investigations and continues to fully cooperate with the respective authorities.

Los Angeles Alarm Permit Class Action

In June 2013, the Company was served with a class action complaint in California State Court entitled Villegas v.

In this complaint, the plaintiff asserted that the Company violated certain provisions of the California Alarm Act and the Los Angeles Municipal Alarm Ordinance for its alleged failures to obtain alarm permits for its Los Angeles customers and disclose the alarm permit fee in its customer contracts.

The plaintiff seeks to recover damages for putative class members who were required to pay enhanced false alarm fines as a result of the Company not obtaining a valid alarm permit at the time of alarm system installation.

The case was initially dismissed by the trial court and judgment was entered in the Company’s favor in October 2014, which the plaintiff appealed.

In September 2016, the California Appellate Court reversed and remanded the case back to the trial court.

In November 2018, the trial court granted the plaintiff’s motion for class certification and certified four subclasses of customers who received fines from the City of Los Angeles.

The case settled in January 2020.

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

Wage and Hour Class Action

In January 2020, the Company acquired Defenders, which is defending against litigation brought by Teddy Archer and seven other security advisors who claim unpaid overtime under the Fair Labor Standards Act (the “FLSA”), breach of contract under state law in all states, and a violation of state wage-hour laws in California, New Jersey, New York, and Washington.

The lawsuit was originally filed in March 2018 in the United States District Court for the District of Delaware.

During 2018, the court conditionally certified the case as an FLSA collective action.

The plaintiffs seek to represent a nationwide class for unpaid wages.

The parties are actively engaged in discovery.

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

The Company has not accrued for any losses for which the likelihood of loss cannot be assessed or the range of possible loss cannot be estimated.

As of March 31, 2022 and December 31, 2021, the Company’s accrual for ongoing claims and lawsuits within the scope of an insurance program totaled $ 89 million and $ 90 million, respectively.

The Company’s accrual related to ongoing claims and lawsuits not within the scope of an insurance program is not material.

Unauthorized Access by a Former Technician

1 unchanged sentence

In response, the Company initiated an affirmative outreach effort to notify all customers affected by this activity and to address their concerns.

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

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

One of the individual claims was subsequently settled.

Since the disclosure, seven lawsuits have been filed against the Company, and the Company intervened in an eighth lawsuit filed against the former technician.

Four of these lawsuits were originally filed as putative class actions and four as individual claims.

One of the individual claims and one of the putative class actions subsequently settled.

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

1 unchanged sentence

District Court for the Southern District of Florida.

By an amended complaint, the plaintiff asserts causes of action on behalf of herself and other Company customers similarly situated, and seeks to recover damages for breach of contract, negligence, intrusion upon seclusion, violation of the Computer Fraud and Abuse Act, negligent hiring, supervision and retention, and intentional infliction of emotional distress.

By an amended complaint, the plaintiff asserted causes of action on behalf of herself and other Company customers similarly situated, and sought to recover damages for breach of contract, negligence, intrusion upon seclusion, violations of the Computer Fraud and Abuse Act and of the Texas Deceptive Trade Practices Act, negligent hiring, supervision and retention, and intentional infliction of emotional distress.

The Company moved to dismiss the plaintiff’s amended complaint.

In December 2020, the federal district court dismissed the causes of action for intrusion upon seclusion and violation of the Computer Fraud and Abuse Act, and further ruled that plaintiff may not seek to hold the Company vicariously liable for any intentional torts committed by the former technician.

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

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

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

The case will proceed thereafter as an individual action..

The matter otherwise remains pending and is in discovery.

In December 2021, the Company moved for summary judgment on Plaintiff’s remaining claims.

In January 2022, plaintiff filed a notice withdrawing motion for class certification and dismissing class allegations.

The case will now proceed as an individual action and is in discovery.

In March 2022, the court entered an order on the Company’s summary judgment motion and dismissed Plaintiff’s claims for gross negligence, negligent hiring, supervision and retention, and intentional infliction of emotional distress.

The court also limited Plaintiff’s damages to $ 500 for the breach of contract and negligence claims under the limitation of liability terms contained in the customer’s contract.

The Company’s motion was denied as to plaintiff’s claim that the Company violated the Texas Deceptive Trade Practices Act.

The case is set for trial in September 2022.

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

1 unchanged sentence

District Court for the Southern District of Florida.

By an amended complaint, the plaintiff asserts causes of action on behalf of herself and others similarly situated as individuals residing in homes of Company customers, and seeks to recover damages for negligence, intrusion upon seclusion, violation of the Computer Fraud and Abuse Act, negligent hiring, supervision and retention, and intentional infliction of emotional distress.

By an amended complaint, the plaintiff asserted causes of action on behalf of herself and others similarly situated as individuals residing in homes of Company customers, and sought to recover damages for negligence, intrusion upon seclusion, violation of the Computer Fraud and Abuse Act, negligent hiring, supervision and retention, and intentional infliction of emotional distress.

The Company moved to dismiss the plaintiff’s amended complaint and to compel arbitration.

In December 2020, the federal district court granted the Company’s motion to compel arbitration.

The case is stayed and administratively closed pending arbitration.

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

The case is stayed and administratively closed and is proceeding in arbitration as an individual claim.

An arbitration hearing is currently set for August 2022.

In April 2021, the Company was served with a class action complaint filed in the U.S.

District Court for the Southern District of Florida on behalf of Randy Doty, the husband of the plaintiff in Shana Doty v.

The claims alleged in the new complaint are substantially similar to the claims asserted in Alexa Preddy v.

The claims alleged in the complaint are substantially similar to the claims asserted in Alexa Preddy v.

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

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

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

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

The matter remains pending and is in discovery.

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

As with the Shana Doty matter, plaintiff filed a notice withdrawing motion for class certification and dismissing class allegations.

The case is proceeding as an individual action, which has been consolidated with the Shana Doty v.

ADT LLC case, and a ruling is pending on the Company’s motion for summary judgment.

This case is also set for trial in September 2022.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Following the November 2021 abandonment of their class action allegations, the lawyers in the Doty and Preddy cases filed a new complaint in the U.S.

District Court for the Southern District of Florida on behalf of seven different customers and fourteen members of their respective households.

The case is captioned Stefanie Bryant, et al.

The claims alleged in the new complaint are substantially similar to the claims asserted in Alexa Preddy v.

ADT LLC, Shana Doty v.

ADT LLC, and Randy Doty v.

The Company may also be subject to future legal claims.

Segment Information

Effective in the first quarter of 2021, the manner in which the Company’s Chief Executive Officer, who is the CODM, evaluates performance and makes decisions about how to allocate resources changed.

Therefore, the Company now reports results in two operating and reportable segments, CSB and Commercial, rather than a single operating and reportable segment.

Refer to Note 1 “Description of Business and Summary of Significant Accounting Policies,” for a description of the Company’s segments.

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

The CODM uses Adjusted EBITDA, which is the segment profit measure, to evaluate segment performance.

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

(iii) depreciation and amortization, including depreciation of subscriber system assets and other fixed assets and amortization of dealer and other intangible assets;

(iv) amortization of deferred costs and deferred revenue associated with subscriber acquisitions;

(v) share-based compensation expense;

(vi) merger, restructuring, integration, and other;

(vii) losses on extinguishment of debt;

(viii) radio conversion costs, net;

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

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

therefore, such information is not presented.

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

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

(in thousands) 2021 2020 2021 2020

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

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

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

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

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

Company as Lessee

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

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

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

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

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

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

Lease payments that are neither fixed nor dependent on an index or rate and vary because of changes in usage or other factors are included in variable lease costs.

Variable lease costs are recorded in the period in which the obligation is incurred and primarily relate to fuel, repair, and maintenance payments as they vary based on the usage of leased vehicles and buildings.

The Company’s leases do not contain material residual value guarantees or restrictive covenants.

The Company’s subleases are not material.

Right-of-Use Assets and Lease Liabilities:

(in thousands)

Adjusted EBITDA by segment:

CSB $ 528,680 $ 548,965 $ 1,558,055 $ 1,636,726

Commercial 25,630 14,844 80,251 29,682

Total $ 554,310 $ 563,809 $ 1,638,306 $ 1,666,408

Reconciliation to consolidated net loss before taxes:

Total segment Adjusted EBITDA $ 554,310 $ 563,809 $ 1,638,306 $ 1,666,408

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

Depreciation and intangible asset amortization 480,010 473,346 1,424,090 1,440,239

Amortization of deferred subscriber acquisition costs 32,534 24,810 91,364 70,226

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

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

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

Loss on extinguishment of debt 36,957 48,916 37,113 114,759

Radio conversion costs, net (1)

March 31, 2022 December 31, 2021

Presentation and Classification:

Operating Current Prepaid expenses and other current assets $ 248 $ 230

Operating Non-current Other assets 123,673 125,945

Finance Non-current Property and equipment, net (1)

86,961 88,962

Other 365 ( 851 ) ( 19 ) 1,981

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

Total right-of-use assets $ 210,882 $ 215,137

Operating Current Accrued expenses and other current liabilities $ 38,469 $ 37,359

Finance Current Current maturities of long-term debt 40,104 38,730

Operating Non-current Other liabilities 96,572 99,734

Finance Non-current Long-term debt 50,212 54,350

Total lease liabilities $ 225,357 $ 230,173

_________________

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

(1) Finance right-of-use assets are recorded net of accumulated depreciation of approximately $ 88 million and $ 78 million as of March 31, 2022 and December 31, 2021, respectively.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended March 31,

( in thousands )

Operating lease cost $ 12,485 $ 12,893

Finance lease cost:

Amortization of right-of-use assets 9,852 6,311

Interest on lease liabilities 831 695

Variable lease costs 23,134 12,978

Total lease cost $ 46,302 $ 32,877

Cash Flow and Supplemental Information:

Three Months Ended March 31,

( in thousands )

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

Operating leases:

Operating cash flows $ 11,659 $ 12,539

Finance leases:

Operating cash flows $ 831 $ 695

Financing cash flows $ 10,691 $ 7,208

Right-of-use assets obtained in exchange for lease obligations:

Operating leases $ 9,061 $ 2,187

Finance leases $ 8,217 $ 8,072

Company as Lessor

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

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

RELATED PARTY TRANSACTIONS

The Company’s related party transactions primarily relate to management, consulting, and transaction advisory services provided by Apollo, as well as monitoring and related services provided to or products and services received from other entities controlled by Apollo.

There were no significant related party transactions for the three or nine months ended September 30, 2021 and 2020.

The Company’s related party transactions primarily relate to products and services received from, or monitoring and related services provided to, other entities controlled by Apollo, as well as management, consulting, and transaction advisory services provided by Apollo to the Company.

There were no significant related party transactions during the periods presented other than as described below:

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Sunlight Financial LLC

ADT Solar uses Sunlight Financial LLC (“Sunlight”), a related party controlled by Apollo, to access certain loan products for ADT Solar customers, as discussed in Note 2 “Revenue and Receivables.” The Company is not a party to these loan agreements.

Sunlight remits the loan amount, net of financing fees, to the Company once the loan is approved or upon installation.

For the three months ended March 31, 2022, the Company incurred $ 15 million of financing fees based on approximately $ 100 million of loan proceeds remitted by Sunlight to the Company.

Intrado Corporation

The Company uses Intrado Corporation (“Intrado”), a related party controlled by Apollo, for certain technology and communications services in the ordinary course of business.

The Company is party to an agreement with Intrado for the provision of certain emergency response and telecommunication services, which includes commitments of approximately $ 4 million through 2025.

Intrado fees totaled approximately $ 0.7 million for the three months ended March 31, 2022.

Rackspace US, Inc.

During October 2020, the Company entered into a master services agreement with Rackspace US, Inc., a related party controlled by Apollo, for the provision of cloud storage, equipment, and services to facilitate the implementation of the Company’s cloud migration strategy for certain applications.

The master services agreement includes a minimum purchase commitment of $ 50 million over a seven year term.

As of March 31, 2022, total purchases under this agreement since inception were approximately $ 9 million, with approximately $ 3 million occurring during the three months ended March 31, 2022.

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

What changed 10-Q

Item 1. Financial Statements