What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-04 compared with 2022-05-06 · 180 added, 124 removed, 240 unchanged (56% of the section changed)

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Factors that could cause such differences are discussed in the sections of this Quarterly Report on Form 10-Q titled “Cautionary Statements Regarding Forward-Looking Statements” and Item 1A “Risk Factors.”

• Overview and Basis of P resentation

• Factors Affecting Operating Results

• Key Perfor mance Indicators

• Results of Operations

• Non-GAAP Measures

• Liquidity and Capital Resources

• Critical Accounting Polici es and Estimates

• Cautionary S tate ments Regarding Forward-Looking Statem e nts

OVERVIEW AND BASIS OF PRESENTATION

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

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

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

Since the acquisition of Compass Solar Group, LLC (now named ADT Solar LLC) (“ADT Solar”) (the “ADT Solar Acquisition”) in December 2021, we also provide residential solar and energy storage solutions.

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

Basis of Presentation

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All intercompany transactions have been eliminated.

In addition, we use the equity method of accounting to account for an investment in which we have the ability to exercise significant influence but do not control.

We report financial and operating information in the following three segments:

• Consumer and Small Business - The Consumer and Small Business (“CSB”) segment primarily includes the sale, installation, servicing, and monitoring of integrated security and automation systems and other related offerings to residential homeowners, small business operators, and other individual consumers, as well as general corporate costs and other income and expense items not included in another segment.

• Commercial - The Commercial segment primarily includes the sale, installation, servicing, and monitoring of integrated security and automation systems, fire detection and suppression systems, and other related offerings to larger businesses and/or multi-site operations, which often require more sophisticated integrated solutions, as well as dedicated corporate and other costs.

• Solar - The Solar segment primarily includes the design and installation of solar and related solutions and services to residential homeowners who purchase solar and energy storage solutions, energy efficiency upgrades, and roofing services, as well as dedicated corporate and other costs.

Our chief operating decision maker (the “CODM”) uses Adjusted EBITDA, which is the segment profit measure, to evaluate segment performance.

Our chief operating decision maker (the “CODM”) uses Adjusted EBITDA, which is considered the segment profit measure, to evaluate segment performance.

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

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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 our employees and serve our customers, we have implemented and are continuously evolving certain measures, such as (i) detailed protocols for infectious disease safety for employees, (ii) employee daily wellness checks, and (iii) certain work from home actions, including for the majority of our call center professionals.

To protect our employees and serve our customers, we have implemented and are continuously monitoring and evolving certain measures as necessary, such as (i) detailed protocols for infectious disease safety for employees, (ii) employee daily wellness checks, and (iii) certain work from home actions, including for the majority of our call center professionals.

Our response plan has not materially changed from that described in the 2021 Annual Report, and we continue to provide relevant updates to management, employees, and our customers as necessary.

We believe our overall recurring revenue and highly variable subscriber acquisition cost model provides a solid financial foundation for strong cash flow generation despite the impact from the COVID-19 Pandemic.

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We considered the on-going and pervasive economic impact of the COVID-19 Pandemic in our assessment of our 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 our employee base or impose additional costs on our business, could materially impact our estimates and financial results in future reporting periods.

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

FACTORS AFFECTING OPERATING RESULTS

We have been focused on building the right platform for growth, which includes:

improving customer satisfaction, increasing our recurring monthly revenue through customer acquisition, improving customer retention, reducing our revenue payback period, increasing the value of our offerings to customers through new products and services, and increasing the rate at which new customers opt for our interactive services.

In December 2021, we completed the ADT Solar Acquisition, which expanded our offerings and allowed us to enter the residential solar market.

Consumer acceptance of solar energy and battery storage as the future of energy technology is growing.

We believe solar is the next logical extension for our offerings, which provides us with the ability to offer an integrated home experience and increase our share in both markets.

Our ability to add new customers depends on the overall demand for our products and services, which is driven by a number of external factors.

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

Other factors include the following:

• Growth in our residential and small business customer base can be influenced by the overall state of the housing market, the perceived threat of crime, significant life events such as the birth of a child or opening of a new business, or incentives provided by insurance carriers.

We have been building a strong platform for growth by focusing on improving customer satisfaction, increasing our recurring monthly revenue through customer acquisition, improving customer retention, reducing our revenue payback period, increasing the value of our offerings through new products and services, and increasing the rate at which new customers opt for our interactive services.

In December 2021, we expanded into the residential solar market with the closing of the ADT Solar Acquisition.

We believe solar is the next logical extension for our offerings, which enhances our ability to offer an integrated safe, smart, and sustainable home experience.

As of June 30, 2022, we served approximately 6.7 million security monitoring service subscribers.

Generally, a significant upfront investment is required to acquire new customers for our subscriber-based offerings that then provide ongoing and predictable recurring revenue generated from our monitoring and other services.

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

In addition, our results are impacted by the mix of transactions under a Company-owned equipment model versus a customer-owned equipment model for our subscriber-based offerings, as there are different accounting treatments applicable to each model.

As we continue building our partnership with Google LLC (“Google”), introducing new or enhancing our current offerings, and refining our go-to-market approach, we expect to see a shift toward an increasing proportion of transactions under a customer-owned equipment model (referred to as outright sales), which will impact results in future periods.

Our ability to add new customers and grow our businesses also depends on the overall demand for our products and services, which is driven by a number of external factors such as the overall economic conditions in the geographies in which we operate, the price and quality of our products and services compared to those of our competitors, as well as changes in competition such as from the acquisition or disposition of similar businesses by our competitors.

The demand for our products and services in our customer channels is also impacted by the following:

• Growth in our residential and small business customer base can be influenced by the overall state of the housing market, the perceived threat of crime, the occurrence of significant life events such as the birth of a child or opening of a new business, or the availability of financial incentives such as those provided by insurance carriers.

• Growth in our commercial customer base can be influenced by the rate at which new businesses begin operations or existing businesses grow, as well as applicable building codes and insurance policies.

In addition, changes in the market or competition, such as the acquisition or disposition of similar businesses by our competitors, may impact our ability to compete.

• Growth in our solar customer base can be influenced by the availability of rebates, tax credits, and other financial incentives, as well as traditional energy prices and grid reliability.

The demand for our products and services is also impacted by the price and quality of our products and services compared to those of our competitors.

As of March 31, 2022, we served approximately 6.7 million subscribers.

Although our subscriber-based offerings require significant upfront investment to generate new customers, they also provide ongoing and predictable recurring revenue generated from our monitoring and other services.

While the economics of an installation can vary depending on the customer acquisition channel, type of customer, and product offering, we generally achieve revenue break-even in less than two and a half years, which remains relatively consistent period-over-period.

• Growth in our solar customer base can be influenced by the availability of certain rebates, tax credits, and other financial incentives, the availability and cost of consumer financing options, and traditional energy prices and grid reliability.

We believe advancements in technology, younger generations of consumers, and shifts to de-urbanization have increased consumer interest in smart home offerings and other mobile technology applications;

and we have made significant progress toward increasing the variety of our offerings to accommodate these changing interests.

As a result of this, we may experience an increase in costs associated with items such as (i) offering a wider variety of products and services, (ii) providing more

interactive and smart home solutions, (iii) replacing or upgrading certain system components due to technological advancements or otherwise, and (iv) rising costs due to supply chain disruptions, inflation, other changes in prices or terms from our vendors, or rising labor costs.

We have implemented certain actions across our business segments such as our virtual service support program in July 2021, which provides customers the ability to live video stream with our skilled technicians to troubleshoot and resolve service issues.

This reduces the cost for us to provide certain services, and it also provides customers with more options for receiving service that best fits their lifestyles.

In addition, our results are impacted by the mix of transactions under a Company-owned model versus a customer-owned model due to the different accounting treatment applicable to each model.

As we introduce new products and services, enhance our current offerings, continue building our partnership with Google LLC (“Google”), seek to satisfy consumer preferences, and refine our go-to-market approach, we expect to see a shift toward more outright sales, which will impact results in future periods.

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

However, we may experience an increase in costs associated with factors such as (i) offering a wider variety of products and services;

(ii) providing a greater mix of interactive and smart home solutions;

(iii) replacing or upgrading certain system components due to technological advancements or otherwise;

(iv) supply chain disruptions;

(v) inflationary pressures on costs such as materials, labor, and fuel;

and (vi) other changes in prices or terms from our suppliers, vendors, or third-party lenders that provide loan products to our Solar customers.

We have implemented certain actions across our business segments such as our virtual service support program (the “Virtual Assistance Program”) in our CSB segment, which we launched in July 2021.

The Virtual Assistance Program provides our customers the ability to troubleshoot and resolve certain service issues through a live video stream with our skilled technicians.

This provides customers with more options for receiving certain services that best fit their lifestyles while reducing the cost for us to provide these services.

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

A portion of our customer base can be expected to cancel its service every year as customers may choose not to renew or may terminate their contracts for a variety of reasons, including relocation, cost, loss to competition, or service issues.

In addition, customers who we are not able to effectively transition prior to the applicable network sunset date, as discussed below, will experience a loss of signal, which could impact attrition in the future.

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

In addition, customers who do not transition prior to the applicable 3G or Code-Division Multiple Access (“CDMA”) network sunset date, as discussed below, may experience a loss of signal, which could impact attrition in the future.

Prior to 2020, new customer additions and our disconnect rates on our residential monitored security customers were typically higher during the second and third calendar quarters of each year relative to the first and fourth quarters due to several factors including the timing of household moves and the overall state of the housing market.

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

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

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

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

During 2020, we experienced a lower volume of customer relocations which was followed by a slight increase during 2021 as the number of household moves increased.

During 2022, we are beginning to see favorable trends in gross customer revenue attrition as a result of a lower volume of customer relocations.

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

We have not sought or requested government assistance as a result of the COVID-19 Pandemic, but we did experience a favorable cash flow impact during 2020 and other benefits associated with certain income tax and payroll tax provisions of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), including the deferral of remittance of certain 2020 payroll taxes.

We paid the majority of the first 50% of the deferred amount during the fourth quarter of 2021, with the remainder due by the end of 2022.

The factors described herein could have a material adverse effect on our business, financial condition, results of operations, cash flows, and key performance indicators.

The factors described above and elsewhere in this section could have a material adverse effect on our business, financial condition, results of operations, cash flows, and key performance indicators.

Other Events and Updates

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

• Radio Conversion Costs - During 2019, we commenced a program to replace the 3G and CDMA cellular equipment used in many of our security systems as a result of the cellular network providers notifying us they will be retiring their 3G and CDMA networks beginning in February 2022.

As of the start of the 3G sunset process in February 2022, we had converted substantially all of our remaining 3G customers.

For those customers we are not or were not able to transition prior to or since the completion of the applicable network sunset, the loss of signal to the systems and certain services we provide may impact our ability to bill and/or collect from these customers in the future.

For those customers who do not transition prior to or since the completion of the applicable network sunset, the loss of signal to our security systems and certain services we provide may impact our ability to bill and/or collect from these customers in the future.

Until the cellular network providers complete the applicable sunset processes, we cannot estimate the impact of the conversion on our attrition rate.

We do not expect the remaining radio conversion costs and related incremental revenue to be material.

• Google - 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.

• Google - In July 2020, 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 our end-user security and automation platform.

Further, subject to certain carve-outs, we have agreed to exclusively sell Google Devices and Services to our customers.

If the integrated Google Devices and Services are not launched by June 30, 2022, Google has the contractual right to require us, 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.

The Company launched the Google Nest doorbell during the first quarter of 2022, rolled out mesh Wi-Fi during the second quarter of 2022, and expects to launch Google indoor and outdoor cameras by the end of the third quarter of 2022.

In June 2022, we amended the Google Commercial Agreement to extend the date for the launch of the integrated Google Devices and Services until September 30, 2022.

If the integrated Google Devices and Services are not launched by September 30, 2022, Google has the contractual right to require us, with certain exceptions, until such integration, to exclusively offer 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.

We have already begun providing Google video services and devices and will continue to do so on a non-integrated basis as we work closely with Google toward an integrated solution.

We launched the Google Nest doorbell during the first quarter of 2022, rolled out mesh Wi-Fi during the second quarter of 2022, and launched Google indoor and outdoor cameras in August 2022.

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

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

• Canopy Investment - In April 2022, we closed on our 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.

• Canopy Investment - In April 2022, we closed on our previously announced transaction with Ford Motor Company (“Ford”) to form a new entity, SNTNL LLC (“Canopy”), which combines 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, our contribution totaled approximately $11 million.

In connection with the investment, we also entered into several commercial agreements (the “Canopy Commercial Agreements”).

Refer to Note 5 “Equity Method Investments” for additional information.

Updates Related to Existing and Potential Tax Legislation

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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 the 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.

Under Internal Revenue Code (“IRC”) Section 163(j), the limitation on net business interest expense deductions will no longer be increased by deductions for depreciation, amortization, or depletion.

Under IRC Section 174, specified research and experimentation expenditures must now be capitalized and amortized.

These items could result in increased taxable income and acceleration of net operating loss utilization, which could impact our tax expense and ultimately, our net income or loss.

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The fiscal year 2023 budget also includes a provision that would reinstate current deductibility for IRC Section 174 research and experimentation expenditures that became subject to capitalization and amortization beginning this year.

Potential for Future Valuation Allowance

As discussed in our 2021 Annual Report, we had a significant amount of deferred tax assets as of December 31, 2021, against which we take valuation allowances that relate to the uncertainty of our ability to utilize these deferred tax assets in future periods.

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We will consider each quarter whether any developments to such legislation, together with the other factors we consider, require a valuation allowance.

We believe that our deferred tax assets will grow meaningfully during 2022 and in subsequent years from their December 31, 2021 level.

There is currently significant uncertainty in the matters we consider when determining whether it is appropriate to take additional valuation allowances and while we have not reported any material changes to our valuation allowances during the first quarter of 2022, we may determine to do so in any of the remaining quarters in 2022 and in subsequent years.

Any material change to our valuation allowance that we have to take would materially and adversely affect our operating results and may result in a net loss position for any given period.

We believe that our deferred tax assets for disallowed interest under IRC Section 163(j) will grow meaningfully during 2022 and in subsequent years from their December 31, 2021 level.

There is currently significant uncertainty in the matters we consider when determining whether it is appropriate to take additional valuation allowances.

While we have not reported any material changes to our valuation allowances as disclosed in our 2021 Annual Report, we may determine to do so in any of the remaining quarters in 2022 or in subsequent years.

Any material change to our valuation allowance would materially and adversely affect our operating results and may result in a net loss position for any given period.

KEY PERFORMANCE INDICATORS

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

We evaluate our results using certain key performance indicators, including the operating metrics recurring monthly revenue (“RMR”) and gross customer revenue attrition, as well as the non-GAAP measure Adjusted EBITDA.

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

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

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

Adjusted EBITDA

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

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

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

Recurring Monthly Revenue

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We use RMR to evaluate our overall sales, installation, and retention performance.

Additionally, we believe the presentation of RMR is useful because it measures the volume of revenue under contract at a given point in time.

Additionally, we believe the presentation of RMR is useful to investors because it measures the volume of revenue under contract at a given point in time.

RMR is also a useful measure for forecasting future revenue performance as the majority of our revenue comes from recurring sources.

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We use gross customer revenue attrition to evaluate our retention and customer satisfaction performance, as well as evaluate subscriber trends by vintage year.

Additionally, we believe the presentation of gross customer revenue attrition is useful as it provides a means to evaluate drivers of customer attrition and the impact of retention initiatives.

Additionally, we believe the presentation of gross customer revenue attrition is useful to investors as it provides a means to evaluate drivers of customer attrition and the impact of retention initiatives.

Adjusted EBITDA

We also disclose Adjusted EBITDA, which is a non-GAAP measure.

RESULTS OF OPERATIONS

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

(in thousands, except as otherwise indicated)

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

Results of Operations:

2022 2021 $ Change

2022 2021 $ Change 2022 2021 $ Change

Monitoring and related services $ 1,145,792 $ 1,083,520 $ 62,272 $ 2,267,088 $ 2,146,286 $ 120,802

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Other income (expense) 1,463 1,533 (70) 2,959 3,336 (377)

Income (loss) before income taxes 71,169 (62,457) 133,626

Income (loss) before income taxes and equity in net earnings (losses) of equity method investee 130,389 (166,871) 297,260 201,558 (229,328) 430,886

Income tax benefit (expense) (37,924) 41,021 (78,945) (57,448) 55,584 (113,032)

Income (loss) before equity in net earnings (losses) of equity method investee $ 92,465 $ (125,850) $ 218,315 $ 144,110 $ (173,744) $ 317,854

Equity in net earnings (losses) of equity method investee (948) — (948) (948) — (948)

Net income (loss) $ 91,517 $ (125,850) $ 217,367 $ 143,162 $ (173,744) $ 316,906

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RMR $ 368,768 $ 352,428 $ 16,340 $ 368,768 $ 352,428 $ 16,340

Gross customer revenue attrition (percent) 12.9% 13.1% N/A

Gross customer revenue attrition (percent) 12.7% 13.3% N/A 12.7% 13.3% N/A

Adjusted EBITDA (2)

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

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(in thousands)

2022 2021 $ Change

2022 2021 $ Change 2022 2021 $ Change

CSB $ 1,011,442 $ 965,233 $ 46,209 $ 2,004,470 $ 1,916,481 $ 87,989

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(1) M&S Revenue is not applicable to our Solar segment.

The increase in total M&S Revenue was primarily attributable to higher recurring revenue in CSB, which was driven by (i) improvements in average pricing as new and existing customers selected higher priced interactive and other services and (ii) an increase in the number of active subscribers since the prior year primarily due to investments in subscriber growth.

The increase in Commercial was driven by higher recurring revenue primarily due to an increase in average prices and higher revenue per service call.

Total RMR was approximately $365 million and $349 million as of March 31, 2022 and 2021, respectively.

The increase in RMR was primarily due to RMR added since 2021 and reflects growth initiatives and improvements in average pricing.

Gross customer revenue attrition was 12.9% and 13.1% as of March 31, 2022 and 2021, respectively.

The decrease in gross customer revenue attrition was primarily attributable to lower voluntary and non-payment disconnects as a result of customer retention initiatives.

Monitoring and related services revenue is primarily comprised of revenue generated from providing recurring monthly monitoring and other services to our customers.

The increase in total M&S Revenue for the three and six months ended June 30, 2022 as compared to the prior year periods was primarily attributable to higher recurring revenue in our CSB segment.

CSB - For the three and six months ended June 30, 2022, higher recurring revenue was driven by improvements in average pricing as new and existing customers selected higher priced interactive and other services, as well as an increase in the number of active subscribers since the prior year periods primarily due to investments in subscriber growth.

Commercial - For the three and six months ended June 30, 2022, higher M&S revenue was driven by an increase in average prices and higher revenue per service call.

RMR - Total RMR increased to $369 million as of June 30, 2022 from $352 million as of June 30, 2021.

RMR added since the prior year period reflects the impact from improvements in average pricing, as new and existing customers selected higher priced interactive and other services, and our subscriber growth initiatives.

Gross Customer Revenue Attrition - Trailing twelve-month gross customer revenue attrition decreased to 12.7% as of June 30, 2022 from 13.3% as of June 30, 2021.

The improvement was primarily attributable to a decrease in relocations and fewer voluntary disconnects primarily resulting from customer retention initiatives.

Installation, Product, and Other Revenue:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(in thousands)

2022 2021 $ Change

2022 2021 $ Change 2022 2021 $ Change

CSB $ 77,047 $ 57,414 $ 19,633 $ 146,608 $ 144,771 $ 1,837

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Total installation, product, and other revenue $ 455,238 $ 220,897 $ 234,341 $ 878,689 $ 462,835 $ 415,854

Total installation, product, and other revenue increased primarily due to revenue from Solar installations, which includes a reduction of approximately $30 million from the amortization of purchase accounting adjustments, as a result of the ADT Solar Acquisition in December 2021.

The decrease in CSB was driven by a lower volume of outright sales transactions partially offset by additional amortization of deferred subscriber acquisition revenue as a result of our transition to a predominately Company-owned model, which was completed during March 2021.

Installation, product, and other revenue is primarily comprised of revenue from the sale and installation of security and solar systems, as well as the amortization of deferred subscriber acquisition revenue.

The increase in total installation, product, and other revenue for the three and six months ended June 30, 2022, as compared to the prior year periods, was primarily due to revenue from Solar installations as a result of the ADT Solar Acquisition in December 2021.

CSB - For the three and six months ended June 30, 2022, the increase in installation, product, and other revenue reflected additional amortization of deferred subscriber acquisition revenue.

For the six months ended June 30, 2022, this was offset by a decrease in installation revenue from a lower volume of outright sales in the first quarter.

These changes were primarily a result of our transition to a predominately Company-owned model in the first quarter of 2021.

Commercial - For the three and six months ended June 30, 2022, installation, product, and other revenue remained relatively flat, reflecting the impact of supply chain delays.

Solar - For the six months ended June 30, 2022, installation, product, and other revenue included a reduction of approximately $30 million in the first quarter of 2022 from the amortization of purchase accounting adjustments.

Cost of Revenue:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(in thousands)

2022 2021 $ Change

2022 2021 $ Change 2022 2021 $ Change

CSB $ 171,204 $ 187,766 $ (16,562) $ 342,384 $ 381,137 $ (38,753)

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Total cost of revenue $ 507,813 $ 381,585 $ 126,228 $ 1,017,581 $ 762,751 $ 254,830

Total cost of revenue increased primarily due to cost of revenue from Solar installations as a result of the ADT Solar Acquisition in December 2021.

The decrease in CSB was driven by a decrease in installation costs due to a lower volume of outright sales transactions as a result of our transition to a predominately Company-owned model, which was completed during March 2021.

In addition, CSB field service and call center costs remained relatively flat despite rising costs and providing service to a larger number of customers, including a higher mix of interactive services.

CSB field service and call center costs also reflected cost savings primarily due to the virtual service program implemented in 2021.

The increase in Commercial cost of revenue was driven by an increase in field service and call center costs primarily due to higher prices on parts, labor, and fuel.

Selling, General, and Administrative Expenses:

The increase in selling, general, and administrative expenses was primarily driven by higher selling, general, and administrative expenses of approximately $76 million as a result of the ADT Solar Acquisition in December 2021.

This increase was partially offset by a decrease in radio conversion costs of $52 million primarily due to a decrease in the number of conversions as we approach the end of the program, as well as a decrease in advertising costs primarily due to our efforts to optimize our advertising model.

Cost of revenue is primarily comprised of costs related to the installation of our security and solar systems, as well as field service and call center costs.

The increase in total cost of revenue for the three and six months ended June 30, 2022, as compared to the prior year periods, was primarily due to higher installation costs as a result of the ADT Solar Acquisition in December 2021.

CSB - For the three months ended June 30, 2022, CSB field service and call center costs decreased, as compared to the prior year period, primarily as a result of cost savings initiatives such as our Virtual Assistance Program implemented in July 2021, despite rising costs and providing service to a larger number of customers, including a higher mix of interactive services.

The decrease for the six months ended June 30, 2022, as compared to the prior year period, is primarily driven by a decrease in installation costs due to a lower volume of outright sales transactions in the first quarter compared to the same period in the prior year as a result of our transition to a predominately Company-owned model, which was completed during March 2021, as well as a decrease in field service and call center costs as described above for the three months ended June 30, 2022.

Commercial - For the three and six months ended June 30, 2022, cost of revenue increased, as compared to the prior year periods, primarily due to higher prices on materials, labor, and fuel.

Selling, General, and Administrative Expenses (“SG&A”):

For the three and six months ended June 30, 2022, the increase in SG&A, as compared to the prior year periods, was primarily driven by:

• incremental expenses of approximately $97 million and $173 million, respectively, as a result of the ADT Solar Acquisition in December 2021, and

• increases in the provision for credit losses (excluding ADT Solar) of approximately $13 million and $19 million, respectively, primarily in our CSB segment due to lower provision in the prior year as a result of the COVID-19 Pandemic.

These increases were partially offset by:

• decreases in radio conversion costs of $63 million and $114 million, respectively, primarily due to a decrease in the number of conversions, and

• decreases in advertising costs (excluding ADT Solar) of approximately $18 million and $38 million, respectively, primarily due to our efforts to optimize our advertising model in our CSB segment.

Depreciation and Intangible Asset Amortization:

Depreciation and intangible asset amortization remained relatively flat and primarily reflected increases in (i) amortization of customer contracts acquired under the ADT Authorized Dealer Program as a result of customer contract additions through our Authorized Dealer Network and from other third parties and (ii) depreciation of subscriber system assets as a result of an increase in Company-owned transactions, partially offset by a decrease in the amortization of customer relationships acquired as part of the acquisition of The ADT Security Corporation in 2016 (the “ADT Acquisition”).

The majority of the remaining net book value of customer relationships acquired in the ADT Acquisition will be amortized during 2022 with the remainder amortized during 2023.

For the three and six months ended June 30, 2022, the decrease in depreciation and intangible asset amortization, as compared to the prior year periods, was primarily driven by:

• a decrease in the amortization of customer relationship intangible assets acquired as part of the acquisition of The ADT Security Corporation in 2016 (the “ADT Acquisition”), partially offset by

• increases in the amortization of customer contracts acquired under our authorized dealer program and from other third parties and depreciation of subscriber system assets primarily due to investments in subscriber growth.

The majority of the remaining net book value of customer relationship intangible assets acquired in the ADT Acquisition will be amortized during 2022 with the remainder amortized during 2023.

Merger, Restructuring, Integration, and Other:

During the three months ended March 31, 2022, merger, restructuring, integration, and other was not material.

During the three months ended March 31, 2021, merger, restructuring, integration, and other primarily included an $18 million impairment charge in CSB due to lower than expected benefits from our developed-technology intangible asset acquired during November 2020.

During the six months ended June 30, 2021, merger, restructuring, integration, and other primarily included an $18 million impairment charge in CSB due to lower than expected benefits from our developed-technology intangible asset acquired during November 2020.

Interest Expense, net:

The decrease in interest expense, net, was primarily driven by unrealized gains on interest rate swap contracts not designated as cash flow hedges of $145 million during the three months ended March 31, 2022 as compared to $107 million during the prior year period, primarily due to an increase in the forward London Interbank Offered Rate (“LIBOR”).

For the three and six months ended June 30, 2022, the decrease in interest expense, net was primarily driven by the unrealized impact on interest rate swap contracts not designated as cash flow hedges primarily due to fluctuations in the forward London Interbank Offered Rate (“LIBOR”).

Refer to Note 8 “Derivative Financial Instruments” for additional information.

Income Tax Benefit (Expense):

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.

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, partially offset by a 2.7% unfavorable impact of permanent items.

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 tax 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.

Income tax expense for the three months ended June 30, 2022 was $38 million, resulting in an effective tax rate for the period of 29.1%.

The effective tax rate primarily represents the federal statutory rate of 21.0%, a state statutory tax rate, net of federal benefits, of 5.5%, and a 3.0% unfavorable impact of prior year return adjustments related to executive compensation, partially offset by a 1.6% favorable impact from the release of a capital loss valuation allowance related to disposal activities.

Income tax benefit for the three months ended June 30, 2021 was $41 million, resulting in an effective tax rate for the period of 24.6%.

The effective tax rate primarily represents the federal statutory rate of 21.0%, a state statutory tax rate, net of federal benefits, of 2.8%, and a 0.6% favorable impact from prior year tax return adjustments.

Income tax expense for the six months ended June 30, 2022 was $57 million, resulting in an effective tax rate for the period of 28.5%.

The effective tax rate primarily represents the federal statutory rate of 21.0%, a state statutory tax rate, net of federal benefits, of 5.9%, a 2.0% unfavorable impact of prior year return adjustments related to executive compensation, and a 1.4% unfavorable impact of permanent items, partially offset by a 1.0% favorable impact from the release of a capital loss valuation allowance related to disposal activities.

Income tax benefit for the six months ended June 30, 2021 was $56 million, resulting in an effective tax rate for the period of 24.2%.

The effective tax rate primarily represents the federal statutory tax rate of 21.0%, a state statutory tax rate, net of federal benefits, of 2.8%, and a 1.0% favorable impact of share-based compensation.

NON-GAAP MEASURES

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Adjusted EBITDA

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

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

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The table below reconciles Adjusted EBITDA to net income (loss):

Three Months Ended March 31,

(in thousands) 2022 2021 $ Change

Three Months Ended June 30, Six Months Ended June 30,

(in thousands) 2022 2021 $ Change 2022 2021 $ Change

Net income (loss) $ 91,517 $ (125,850) $ 217,367 $ 143,162 $ (173,744) $ 316,906

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1,328 (229) 1,557 37,623 (477) 38,100

Other 1,099 409 690

(8,807) (316) (8,491) (7,708) 93 (7,801)

Adjusted EBITDA $ 597,249 $ 541,865 $ 55,384 $ 1,198,246 $ 1,083,996 $ 114,250

________________

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

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

(2) During 2022, primarily represents the gain on sale of a business.

Adjusted EBITDA in total and by segment was as follows:

Three Months Ended March 31,

(in thousands) 2022 2021 $ Change

Three Months Ended June 30, Six Months Ended June 30,

(in thousands) 2022 2021 $ Change 2022 2021 $ Change

CSB $ 580,701 $ 509,897 $ 70,804 $ 1,141,246 $ 1,029,375 $ 111,871

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

The increase in total Adjusted EBITDA was primarily attributable to CSB, which was driven by an increase in M&S Revenue and a decrease in advertising costs, partially offset by (i) an increase in general and administrative expenses and (ii) a decrease in installation revenue, net of the associated installation costs and commissions, as discussed above.

Commercial Adjusted EBITDA remained relatively flat and primarily included an increase in M&S Revenue, offset by (i) an increase in field service and call center costs and (ii) an increase in selling, general, and administrative expenses.

Solar Adjusted EBITDA primarily reflects installation revenue, net of the associated installation costs and commissions, partially offset by selling, general, and administrative expenses.

The change in total Adjusted EBITDA for the three and six months ended June 30, 2022, as compared to the prior year, was primarily due to the following:

• CSB Adjusted EBITDA increased primarily due to an increase in M&S Revenue, as well as decreases in advertising costs and field service and call center costs, partially offset by an increase in the provision for credit losses.

• Commercial Adjusted EBITDA remained relatively flat and primarily included an increase in M&S Revenue, offset by an increase in field service and call center costs.

In addition, Solar Adjusted EBITDA for the three and six months ended June 30, 2022 includes $11 million of charges associated with the estimated amount of receivables and rebates that are not expected to be collected from a former third-party lender that provided loan products for our Solar customers due to this third-party lender entering a formal insolvency proceeding to effectuate the wind-down of its operations.

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

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2022, liquidity and capital resources primarily consisted of the following:

(in thousands)

Liquidity and capital resources primarily consisted of the following:

(in thousands) June 30, 2022

Cash and cash equivalents $ 43,609

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

In addition, we are closely monitoring the impact of recent inflationary pressures and changes in interest rates on our cash position.

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

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

The Company’s notes due 2023 in the outstanding aggregate principal amount of $700 million (the “ADT Notes due 2023”) mature on June 15, 2023 (the “Maturity Date”).

As of June 30, 2022, the Company is in the process of seeking financing to replace the ADT Notes due 2023 prior to the Maturity Date.

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

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.

Certain of our variable rate debt instruments are based on LIBOR.

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 under our current debt instruments with a variable rate component will be based on SOFR.

Our first lien term loan facility (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.

However, any future modification, such as a repricing, 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.

As of June 30, 2022, our Receivables Facility is based on SOFR as discussed below.

The impact of the transition to SOFR is not expected to be material.

Material Cash Requirements

There have been no material changes to our short-term or long-term material cash requirements, or our commitments and contractual obligations from those disclosed in our 2021 Annual Report, except as discussed below:

There have been no significant changes to our short-term or long-term material cash requirements, or our commitments and contractual obligations from those disclosed in our 2021 Annual Report, except as discussed below:

Customer Account Purchases

In 2021, we 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, we expect that remaining commitments for those potential future customer account purchases could total approximately $33 million through January 2023.

As of June 30, 2022, the remaining commitments for those potential future customer account purchases were not material.

Off-Balance Sheet Arrangements

During the three months ended March 31, 2022, there have been no material changes to our off-balance sheet arrangements as disclosed in our 2021 Annual Report, except as discussed below:

During the six months ended June 30, 2022, there have been no material changes to our off-balance sheet arrangements as disclosed in our 2021 Annual Report, except as discussed below:

During March 2022, we 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 we 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.

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First Lien Credit Agreement

As of March 31, 2022, we had $170 million in outstanding borrowings under our First Lien Revolving Credit Facility;

and during the three months ended March 31, 2022, we borrowed $280 million and repaid $135 million.

As of June 30, 2022, we had $80 million in outstanding borrowings under our First Lien Revolving Credit Facility;

and during the six months ended June 30, 2022, we borrowed $380 million and repaid $325 million.

Receivables Facility

As of March 31, 2022, we had an outstanding balance of $225 million under the Receivables Facility;

and during the three months ended March 31, 2022, we received proceeds of $47 million and repaid $21 million.

As of June 30, 2022, we had an outstanding balance of $292 million under the Receivables Facility;

and during the six months ended June 30, 2022, we received proceeds of $140 million and repaid $47 million.

In May 2022, we amended the Receivables Facility to change the benchmark rate from 1-month LIBOR to Daily SOFR.

In addition, the May 2022 amendment extended the scheduled termination date for the uncommitted revolving period from October 2022 to May 2023, and amended certain other terms to increase the advance rate on pledged collateral.

ADT Notes due 2023

As of June 30, 2022, we had an outstanding balance of $700 million under the ADT Notes due 2023 that was classified as a current liability, net of any unamortized discount, in the Condensed Consolidated Balance Sheets.

As described above, we are in the process of seeking financing to replace the ADT Notes due 2023 prior to June 15, 2023, which is the maturity date.

Debt Covenants

As of March 31, 2022, we were in compliance with all financial covenant and other maintenance tests for all our debt obligations.

As of June 30, 2022, we were in compliance with all financial covenant and other maintenance tests for all our debt obligations.

We do not believe there is a material risk of future noncompliance with our financial covenant and other maintenance tests as a result of the COVID-19 Pandemic, or otherwise.

During the three months ended March 31, 2022, we declared aggregate dividends of $30 million ($0.035 per share) on our Common Stock and $2 million ($0.035 per share) on our Class B Common Stock.

In comparison, during the three months ended March 31, 2021, we declared aggregate dividends of $27 million ($0.035 per share) on our Common Stock and $2 million ($0.035 per share) on our Class B Common Stock.

On May 5, 2022, we 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.

During the six months ended June 30, 2022 and 2021, we declared aggregate dividends of $60 million ($0.035 per share) and $54 million ($0.035 per share) on our Common Stock, respectively, and $4 million ($0.035 per share) on our Class B Common Stock during both periods.

On August 4, 2022, we announced a dividend of $0.035 per share to holders of Common Stock and Class B Common Stock of record on September 15, 2022, which will be distributed on October 4, 2022.

Cash Flow Analysis

Three Months Ended March 31,

Six Months Ended June 30,

(in thousands) 2022 2021 $ Change

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Cash Flows from Operating Activities

The decrease in cash provided by operating activities was primarily due to:

• an increase in payments related to our annual incentive compensation plan of $49 million due to a partial payment in the prior year, and

• timing of payments to and receipts from vendors primarily related to accounts payable and inventory.

These activities were partially offset by:

The increase in cash provided by operating activities was primarily due to:

• a decrease in payments related to radio conversion costs, net of the related incremental revenue, of $111 million, and

• a decrease in cash interest of $11 million from various refinancing transactions of our long-term debt.

These activities were partially offset by:

• an increase in payments related to our annual incentive compensation plan of $49 million due to a partial payment in the prior year, and

• timing of payments to and receipts from vendors primarily related to accounts payable and inventory.

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

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Cash Flows from Investing Activities

Cash flows used in investing activities remained relatively flat and included an increase in subscriber system assets expenditures as a result of an increase in Company-owned transactions and our growth initiatives, partially offset by a decrease in dealer generated customer accounts and bulk account purchases primarily as a result of fewer accounts purchased from third parties in 2022 as compared to 2021.

Cash flows used in investing activities increased primarily due to:

• an increase of $39 million in subscriber system assets expenditures as a result of more Company-owned transactions and our growth initiatives, as well as

• cash paid of $11 million related to our investment in Canopy during 2022, partially offset by

• proceeds of $27 million related to disposal activities during 2022.

Cash Flows from Financing Activities

During the three months ended March 31, 2022, net cash provided by financing activities primarily consisted of (i) $145 million of net proceeds under the First Lien Revolving Credit Facility and (ii) $26 million of net proceeds under the Receivables Facility, partially offset by $32 million of dividend payments on common stock and $13 million of payments related to interest rate swap contracts that included an other-than-insignificant financing element at inception.

During the three months ended March 31, 2021, net cash used in financing activities primarily consisted of (i) $29 million of dividend payments on common stock and (ii) $14 million of payments on interest rate swap contracts that included an other-than-insignificant financing element at inception, partially offset by $22 million of net proceeds under the Receivables Facility.

During the six months ended June 30, 2022, net cash provided by financing activities primarily consisted of:

• net proceeds of $93 million under the Receivables Facility and $55 million under the First Lien Revolving Credit Facility, partially offset by

• dividends on common stock of $63 million, as well as

• payments related to interest rate swap contracts that included an other-than-insignificant financing element at inception of $25 million.

During the six months ended June 30, 2021, net cash used in financing activities primarily consisted of:

• dividends on common stock of $58 million, as well as

• payments related to interest rate swap contracts that included an other-than-insignificant financing element at inception of $28 million, partially offset by

• $55 million of net proceeds under the Receivables Facility.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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This Quarterly Report on Form 10-Q contains certain information that may constitute “forward-looking statements” within the meaning of the U.S.

Private Securities Litigation Reform Act of 1995.

Private Securities Litigation Reform Act of 1995 and are made in reliance on the safe harbor protections provided thereunder.

While we have specifically identified certain information as being forward-looking in the context of its presentation, we caution you that all statements contained in this report that are not clearly historical in nature, including statements regarding anticipated financial performance;

management’s plans and objectives for future operations;

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

business prospects;

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the successful commercialization of our joint venture with Ford;

our recent acquisition of ADT Solar;

the successful conversion of

customers who continue to utilize 3G services;

and other matters are forward-looking.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis