3 unchanged sentences
(in thousands, except share and per share data)
−Removed: June 30, 2022 December 31, 2021
+Added: September 30, 2022 December 31, 2021
Current assets:
28 unchanged sentences
Preferred stock—authorized 1,000,000 shares of $ 0.01 par value;
−Removed: zero issued and outstanding as of June 30, 2022 and December 31, 2021.
+Added: zero issued and outstanding as of September 30, 2022 and December 31, 2021
Common stock—authorized 3,999,000,000 shares of $ 0.01 par value;
−Removed: issued and outstanding shares of 856,642,103 and 846,825,868 as of June 30, 2022 and December 31, 2021, respectively.
+Added: issued and outstanding shares of 858,629,554 and 846,825,868 as of September 30, 2022 and December 31, 2021, respectively
Class B common stock—authorized 100,000,000 shares of $ 0.01 par value;
−Removed: issued and outstanding shares of 54,744,525 as of June 30, 2022 and December 31, 2021.
+Added: issued and outstanding shares of 54,744,525 as of September 30, 2022 and December 31, 2021
Additional paid-in capital 7,273,501 7,261,267
Accumulated deficit ( 4,028,519 ) ( 3,952,590 )
−Removed: Accumulated other comprehensive loss ( 51,334 ) ( 68,973 )
+Added: Accumulated other comprehensive income (loss) ( 47,261 ) ( 68,973 )
Total stockholders' equity 3,206,854 3,248,719
4 unchanged sentences
(in thousands, except per share data)
−Removed: Three Months Ended June 30, Six Months Ended June 30,
+Added: Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
6 unchanged sentences
Merger, restructuring, integration, and other 6,285 ( 6,723 ) 2,968 18,588
+Added: Goodwill impairment 149,385 — 149,385 —
Operating income (loss) 67,341 23,096 353,898 4,837
23 unchanged sentences
(in thousands)
−Removed: Three Months Ended June 30, Six Months Ended June 30,
+Added: Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
9 unchanged sentences
(in thousands)
−Removed: Three Months Ended June 30, 2022
+Added: Three Months Ended September 30, 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
5 unchanged sentences
Share-based compensation expense — — — — 16,692 — — 16,692
+Added: Contingent forward purchase contract — — — — ( 41,938 ) — — ( 41,938 )
Transactions related to employee share-based compensation plans and other 666 — 7 — 3,095 ( 459 ) — 2,643
Ending balance 858,630 54,745 $ 8,586 $ 547 $ 7,273,501 $ ( 4,028,519 ) $ ( 47,261 ) $ 3,206,854
−Removed: Three Months Ended June 30, 2021
+Added: 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 Income (Loss) Total Stockholders' Equity
10 unchanged sentences
(in thousands)
−Removed: Six Months Ended June 30, 2022
+Added: Nine Months Ended September 30, 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
5 unchanged sentences
Share-based compensation expense — — — — 49,644 — — 49,644
+Added: Contingent forward purchase contract — — — — ( 41,938 ) — — ( 41,938 )
Transactions related to employee share-based compensation plans and other
1 unchanged sentence
Ending balance 858,630 54,745 $ 8,586 $ 547 $ 7,273,501 $ ( 4,028,519 ) $ ( 47,261 ) $ 3,206,854
−Removed: Six Months Ended June 30, 2021
+Added: Nine Months Ended September 30, 2021
Number of Common Shares Number of Class B Common Shares Common Stock Class B Common Stock Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Total Stockholders' Equity
12 unchanged sentences
(in thousands)
−Removed: Six Months Ended June 30,
+Added: Nine Months Ended September 30,
Cash flows from operating activities:
8 unchanged sentences
Loss on extinguishment of debt — 37,113
+Added: Goodwill impairment 149,385 —
Intangible asset impairments — 17,883
Unrealized (gain) loss on interest rate swap contracts ( 312,603 ) ( 115,090 )
+Added: Change in fair value of financial instruments 157,550 —
Other non-cash items, net 104,293 99,654
63 unchanged sentences
Refer to Note 3 “Segment Information” for additional information.
+Added: AND SUBSIDIARIES
+Added: NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Use of Estimates
2 unchanged sentences
Actual results could differ materially from these estimates under different assumptions or market conditions.
−Removed: AND SUBSIDIARIES
−Removed: NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
−Removed: COVID-19 Pandemic
−Removed: During March 2020, the World Health Organization declared the outbreak of a novel coronavirus as a pandemic (the “COVID-19 Pandemic”).
−Removed: While responses have varied by individuals, businesses, and state and local governments, the COVID-19 Pandemic, including subsequent variants of the coronavirus, 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.
−Removed: To protect its employees and serve its customers, the Company implemented and is 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 the Company’s call center professionals.
−Removed: The Company’s response plan has not materially changed from that described in the 2021 Annual Report, and the Company continues to provide relevant updates to management, employees, and customers as necessary.
−Removed: 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.
−Removed: 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 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.
+Added: The Company considered recent impacts from macroeconomic conditions such as inflationary pressures, rising interest rates, and supply chain disruptions as well as the on-going impacts of the COVID-19 Pandemic (as defined below) 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.
+Added: COVID-19 Pandemic - During March 2020, the World Health Organization declared the outbreak of a novel coronavirus as a pandemic (the “COVID-19 Pandemic”).
+Added: As of September 30, 2022, the Company’s response plan has not materially changed from that described in the 2021 Annual Report.
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
−Removed: Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2021-01, Reference Rate Reform (Topic 848) :
+Added: Reference Rate Reform - 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.
−Removed: The guidance is optional and is effective for a limited period of time through December 31, 2022.
−Removed: As of June 30, 2022, this guidance had no impact on the condensed consolidated financial statements.
−Removed: However, the Company will continue to evaluate this guidance in subsequent periods.
+Added: The guidance is optional and may be applied prospectively to contract modifications made on or before December 31, 2022.
+Added: As of September 30, 2022, this guidance had no impact on the condensed consolidated financial statements.
+Added: However, the Company will continue to evaluate this guidance.
Recently Issued Accounting Pronouncements
−Removed: ASU 2022-02, Financial Instruments — Credit Losses (Topic 326):
−Removed: 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.
−Removed: 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.
−Removed: This guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.
−Removed: 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.
−Removed: 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.
−Removed: The Company is currently evaluating the impact of this guidance.
−Removed: ASU 2022-03, Fair Value Measurement (Topic 820):
−Removed: Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022-03”), clarifies the accounting guidance for equity securities subject to contractual sale restrictions, stating an entity should not consider the contractual sale restriction when measuring the equity security’s fair value.
−Removed: ASU 2022-03 also introduces new disclosure requirements related to equity securities subject to contractual sale restrictions, including the fair value of such equity securities reflected in the balance sheet, the nature and remaining duration of the restrictions, and circumstances that could cause a lapse in the restrictions.
−Removed: The guidance is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years.
−Removed: It should be applied prospectively with any adjustments from the adoption of the amendments recognized in earnings and disclosed on the date of adoption.
−Removed: Early adoption is permitted, including adoption in an interim period.
−Removed: The Company is currently evaluating the impact of this guidance.
+Added: Vintage Disclosures for Financing Receivables - ASU 2022-02, Financial Instruments — Credit Losses (Topic 326):
+Added: Troubled Debt Restructurings and Vintage Disclosures , requires reporting entities to disclose current-period gross write-offs by year of origination for financing receivables, among other requirements.
+Added: This guidance becomes effective January 1, 2023, and should be applied prospectively.
+Added: Early adoption is permitted.
+Added: The Company is currently evaluating this guidance.
+Added: Fair Value of Equity Investments - ASU 2022-03, Fair Value Measurement (Topic 820):
+Added: Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, states an entity should not consider the contractual sale restriction when measuring the equity security’s fair value and introduces new disclosure requirements related to such equity securities.
+Added: This guidance becomes effective January 1, 2024, and should be applied prospectively with any adjustments recognized in earnings and disclosed on the date of adoption.
+Added: Early adoption is permitted.
+Added: The Company is currently evaluating this guidance.
+Added: Supplier Finance Program Obligations - ASU 2022-04, Liabilities — Supplier Finance Programs (Subtopic 405-50):
+Added: Disclosure of Supplier Finance Program Obligations, requires that a reporting entity who is a buyer in a supplier finance program disclose qualitative and quantitative information about its supplier finance programs, including a roll-forward of the obligations.
+Added: This guidance becomes effective January 1, 2023, and should be applied retrospectively, except for the amendment on roll-forward information, which becomes effective January 1, 2024, and should be applied prospectively.
+Added: Early adoption is permitted.
+Added: The Company is currently evaluating this guidance.
AND SUBSIDIARIES
3 unchanged sentences
Cash and Cash Equivalents and Restricted Cash and Restricted Cash Equivalents
−Removed: All highly liquid investments with original maturities of three months or less from the time of purchase are considered to be cash equivalents.
−Removed: Cash and cash equivalents that are restricted for a specific purpose and cannot be presented within the general cash and cash equivalents account are considered restricted cash and restricted cash equivalents and are reflected in prepaid expenses and other current assets in the Condensed Consolidated Balance Sheets.
−Removed: 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:
−Removed: (in thousands) June 30, 2022 December 31, 2021
+Added: Cash and cash equivalents that are restricted for a specific purpose and cannot be presented within the general cash and cash equivalents account are included in restricted cash and restricted cash equivalents, which is reflected in prepaid expenses and other current assets.
+Added: The following table reconciles the amounts below reported in the Condensed Consolidated Balance Sheets to the total of the same such amounts shown in the Condensed Consolidated Statements of Cash Flows:
+Added: (in thousands) September 30, 2022 December 31, 2021
Cash and cash equivalents $ 45,734 $ 24,453
8 unchanged sentences
The Company depreciates and amortizes these pooled costs using an accelerated method over the estimated life of the customer relationship, which is 15 years.
−Removed: (in thousands) June 30, 2022 December 31, 2021
+Added: (in thousands) September 30, 2022 December 31, 2021
Gross carrying amount $ 6,054,439 $ 5,499,703
1 unchanged sentence
Subscriber system assets, net $ 3,039,577 $ 2,867,528
−Removed: Depreciation of subscriber system assets and amortization of 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:
−Removed: Three Months Ended June 30, Six Months Ended June 30,
+Added: Depreciation of subscriber system assets and amortization of deferred subscriber acquisition costs are reflected in depreciation and intangible asset amortization and selling, general, and administrative expenses, respectively, as follows:
+Added: Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2022 2021 2022 2021
5 unchanged sentences
Accrued Expenses and Other Current Liabilities
−Removed: (in thousands) June 30, 2022 December 31, 2021
+Added: (in thousands) September 30, 2022 December 31, 2021
Accrued interest $ 69,435 $ 124,579
2 unchanged sentences
Fair value of interest rate swaps (1)
+Added: Fair value of other financial instruments (2)
Other accrued liabilities 410,560 328,782
1 unchanged sentence
________________
−Removed: (1) Refer to Note 8 “Derivative Financial Instruments” for presentation of the aggregate fair value of interest rate swaps within the Condensed Consolidated Balance Sheets.
+Added: (1) Refer to Note 8 “Derivative Financial Instruments” for presentation of the aggregate fair value of interest rate swaps.
+Added: (2) Represents a contingent forward purchase contract (the “Forward Contract”) (as defined and discussed in Note 10 “Equity”).
Radio Conversion Program
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.
−Removed: From inception of this program through June 30, 2022, the Company incurred $ 299 million of radio conversion costs, net of related incremental radio conversion revenue.
−Removed: 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:
−Removed: Three Months Ended June 30, Six Months Ended June 30,
+Added: From inception of this program through September 30, 2022, the Company incurred $ 295 million of radio conversion costs, net of related incremental radio conversion revenue.
+Added: Radio conversion costs and radio conversion revenue are reflected in selling, general, and administrative expenses and monitoring and related services revenue, respectively, as follows:
+Added: Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2022 2021 2022 2021
3 unchanged sentences
Fair Value of Financial Instruments
−Removed: The Company’s financial instruments primarily consist of cash and cash equivalents, restricted cash and restricted cash equivalents, accounts receivable, retail installment contract receivables, accounts payable, debt, and derivative financial instruments.
+Added: The Company’s financial instruments primarily consist of cash and cash equivalents, restricted cash and restricted cash equivalents, accounts receivable, retail installment contract receivables, accounts payable, debt, and derivative and other financial instruments.
Due to their short-term and/or liquid nature, the fair values of cash, restricted cash, accounts receivable, and accounts payable approximate their respective carrying amounts.
−Removed: Cash Equivalents - Included in cash and cash equivalents as applicable from time to time are investments in money market mutual funds.
+Added: 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.
+Added: 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.
−Removed: Investments in money market mutual funds were not material as of June 30, 2022, or December 31, 2021.
+Added: Investments in money market mutual funds were not material as of September 30, 2022, or December 31, 2021.
Long-Term Debt Instruments - The fair values of the Company’s long-term debt instruments are determined using broker-quoted market prices, which represent quoted prices for similar assets or liabilities as well as other observable market data, and are classified as Level 2 fair value measurements.
−Removed: The carrying amounts of debt outstanding, if any, under the Company’s revolving credit facility and receivables facility approximate their fair values as interest rates on these borrowings approximate current market rates.
−Removed: June 30, 2022 December 31, 2021
+Added: The carrying amounts of debt outstanding, if any, under the Company’s first lien revolving credit facility (the “First Lien Revolving Credit Facility”) and its uncommitted receivables securitization financing agreement (the “Receivables Facility”) approximate their fair values as interest rates on these borrowings approximate current market rates.
+Added: September 30, 2022 December 31, 2021
(in thousands) Carrying
3 unchanged sentences
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
−Removed: Derivative Financial Instruments - Derivative financial instruments are reported at fair value as either assets or liabilities in the Condensed Consolidated Balance Sheets.
+Added: Derivative Financial Instruments - Derivative financial instruments are reported at fair value as either assets or liabilities.
These fair values are primarily calculated using discounted cash flow models utilizing observable inputs, such as quoted forward interest rates, and incorporate credit risk adjustments to reflect the risk of default by the counterparty or the Company.
1 unchanged sentence
Refer to Note 8 “Derivative Financial Instruments” for the fair values of the Company’s derivative financial instruments.
+Added: Forward Contract - The Forward Contract is reported at fair value within accrued and other current liabilities as disclosed above.
+Added: The fair value was calculated using a discounted cash flow analysis as the difference between the present value of the cash consideration to be paid and the value of the Common Stock to be tendered as of the measurement dates.
+Added: The resulting fair value is classified as Level 2 fair value measurements.
+Added: During the three and nine months ended September 30, 2022, changes in fair value of $ 158 million are included in other income (expense).
+Added: Refer to Note 10 “Equity” for additional information.
Retail Installment Contract Receivables - The fair values of the Company’s retail installment contract receivables are determined using a discounted cash flow model and are classified as Level 3 fair value measurements.
−Removed: June 30, 2022 December 31, 2021
+Added: September 30, 2022 December 31, 2021
(in thousands) Carrying
2 unchanged sentences
REVENUE AND RECEIVABLES
−Removed: 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.
+Added: The Company allocates the 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.
Disaggregated Revenue
−Removed: Three Months Ended June 30, Six Months Ended June 30,
+Added: Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2022 2021 2022 2021
10 unchanged sentences
Amounts collected from customers for sales and other taxes are reported as a liability net of the related amounts remitted.
−Removed: When customers terminate a contract early, contract termination charges are assessed in accordance with the contract terms and are recognized in monitoring and related services revenue in the Condensed Consolidated Statements of Operations when collectability is probable.
−Removed: 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).
−Removed: Since March 2021, substantially all new CSB transactions have taken place under a Company-owned model.
+Added: When customers terminate a contract early, contract termination charges are assessed in accordance with the contract terms and are recognized in monitoring and related services revenue when collectability is probable.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
−Removed: 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.
+Added: 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).
+Added: Since March 2021, substantially all new CSB transactions have taken place under a Company-owned model.
+Added: 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.
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.
−Removed: 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 and is reflected in installation, product, and other revenue in the Condensed Consolidated Statements of Operations.
−Removed: Three Months Ended June 30, Six Months Ended June 30,
+Added: 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 and is reflected in installation, product, and other revenue.
+Added: Three Months Ended September 30, Nine Months Ended September 30,
( in thousands )
2 unchanged sentences
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.
−Removed: 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.
+Added: 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.
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.
2 unchanged sentences
Approximately half of installation, product, and other revenue generated by the Commercial segment is recognized over time.
−Removed: 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.
+Added: The portion of the transaction price associated with monitoring and related services revenue is recognized when services are provided to the customer.
Solar - In transactions within the 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.
−Removed: 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.
+Added: Revenue is recognized when control over the products and services are transferred to the customer and is reflected in installation, product, and other revenue.
The Company also enters into agreements with third-party lenders in order to access loan products for the Company’s Solar customers.
These lenders remit the amount of such loans, net of fees, upon installation or based on other contractual terms with the third-party lenders.
−Removed: These fees are recorded as a reduction of installation, product, and other revenue and were approximately $ 40 million and $ 78 million during the three and six months ended June 30, 2022, respectively.
−Removed: During the three months ended June 30, 2022, one of the Company’s third-party lenders that provided loan products for the Company’s Solar customers entered a formal insolvency proceeding to effectuate the wind-down of its operations.
−Removed: The Company recorded charges to the provision for credit losses and revenue in an aggregate amount of $ 11 million associated with the estimated amount of receivables and rebates that are not expected to be collected from this lender.
+Added: These fees are recorded as a reduction of installation, product, and other revenue and were approximately $ 29 million and $ 107 million during the three and nine months ended September 30, 2022, respectively.
+Added: In the second quarter of 2022, one of the Company’s third-party lenders that provided loan products for the Company’s Solar customers entered a formal insolvency proceeding to effectuate the wind-down of its operations.
+Added: During the nine months ended September 30, 2022, charges to the provision for credit losses and revenue associated with the estimated amount of receivables and rebates that are not expected to be collected from this lender were $ 11 million.
+Added: AND SUBSIDIARIES
+Added: NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Product and System Sales
−Removed: Revenue from product and system sales is included in installation, product, and other revenue in the Condensed Consolidated Statements of Operations.
+Added: Revenue from product and system sales is included in installation, product, and other revenue.
Cost of revenue from product and system sales is exclusive of depreciation and amortization.
−Removed: Three Months Ended June 30, Six Months Ended June 30,
+Added: Three Months Ended September 30, Nine Months Ended September 30,
( in thousands )
2 unchanged sentences
Cost of revenue from product and system sales $ 225,575 $ 145,397 $ 666,869 $ 452,852
−Removed: AND SUBSIDIARIES
−Removed: NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Deferred Revenue
11 unchanged sentences
Changes in the Allowance for Credit Losses:
−Removed: Six Months Ended June 30,
+Added: Nine Months Ended September 30,
(in thousands) 2022 2021
13 unchanged sentences
The allowance for credit losses relates to retail installment contract receivables from outright sales transactions and is not material.
+Added: AND SUBSIDIARIES
+Added: 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.
1 unchanged sentence
Subsequent to origination, the Company monitors the delinquency status of retail installment contract receivables as the key credit quality indicator.
−Removed: As of June 30, 2022, the current and delinquent billed retail installment contract receivables were not material.
−Removed: AND SUBSIDIARIES
−Removed: NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
−Removed: Unbilled retail installment contract receivables reflected in the Condensed Consolidated Balance Sheets include:
−Removed: (in thousands) June 30, 2022 December 31, 2021
+Added: As of September 30, 2022, the current and delinquent billed retail installment contract receivables were not material.
+Added: The balance of unbilled retail installment contract receivables comprises:
+Added: (in thousands) September 30, 2022 December 31, 2021
Retail installment contract receivables, gross $ 498,607 $ 331,512
1 unchanged sentence
Retail installment contract receivables, net $ 497,799 $ 330,605
−Removed: Classification:
+Added: Balance Sheet Classification:
Accounts receivable, net $ 156,806 $ 100,385
1 unchanged sentence
Retail installment contract receivables, net $ 497,799 $ 330,605
−Removed: As of June 30, 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 $ 402 million and $ 299 million, respectively.
+Added: As of September 30, 2022 and December 31, 2021, retail installment contract receivables, net, used as collateral for borrowings under the Receivables Facility were $ 462 million and $ 299 million, respectively.
Refer to Note 7 “Debt” for further discussion regarding the Receivables Facility.
7 unchanged sentences
The allowance for credit losses on contract assets was not material for the periods presented.
−Removed: During the three and six months ended June 30, 2022 and 2021, contract assets recognized were not material.
−Removed: Contract assets for residential transactions reflected in the Condensed Consolidated Balance Sheets includes:
−Removed: (in thousands) June 30, 2022 December 31, 2021
+Added: During the three and nine months ended September 30, 2022 and 2021, contract assets recognized were not material.
+Added: The balance of contract assets for residential transactions comprises:
+Added: (in thousands) September 30, 2022 December 31, 2021
Contract assets, gross $ 64,263 $ 106,810
1 unchanged sentence
Contract assets, net $ 58,043 $ 94,510
−Removed: Classification:
+Added: Balance Sheet Classification:
Prepaid expenses and other current assets $ 41,284 $ 58,452
1 unchanged sentence
Contract assets, net $ 58,043 $ 94,510
+Added: AND SUBSIDIARIES
+Added: NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEGMENT INFORMATION
5 unchanged sentences
Customers in the CSB segment are comprised of residential homeowners, small business operators, and other individual consumers.
−Removed: AND SUBSIDIARIES
−Removed: NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
• 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;
6 unchanged sentences
Customers in the Solar segment are comprised of residential homeowners who purchase solar and energy storage solutions, energy efficiency upgrades, and roofing services.
−Removed: The CODM uses Adjusted EBITDA, which is the segment profit measure, to evaluate segment performance.
+Added: The CODM uses Adjusted EBITDA, which is the Company’s segment profit measure, to evaluate segment performance.
Adjusted EBITDA is defined as net income or loss adjusted for (i) interest;
5 unchanged sentences
(viii) radio conversion costs, net;
−Removed: and (ix) other income/gain or expense/loss items such as impairment charges, financing and consent fees, or acquisition-related adjustments.
+Added: and (ix) other income/gain or expense/loss items such as changes in fair value of certain financial instruments, impairment charges, financing and consent fees, or acquisition-related adjustments.
The CODM does not review the Company's assets by segment;
1 unchanged sentence
The following table presents total revenue by segment and a reconciliation to consolidated total revenue:
−Removed: Three Months Ended June 30, Six Months Ended June 30,
+Added: Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2022 2021 2022 2021
6 unchanged sentences
The following table presents Adjusted EBITDA by segment and a reconciliation to consolidated income (loss) before income taxes and equity in net earnings (losses) of equity method investee:
−Removed: Three Months Ended June 30, Six Months Ended June 30,
+Added: Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2022 2021 2022 2021
12 unchanged sentences
Merger, restructuring, integration, and other 6,285 ( 6,723 ) 2,968 18,588
+Added: Goodwill impairment (1)
+Added: 149,385 — 149,385 —
Loss on extinguishment of debt — 36,957 — 37,113
+Added: Change in fair value of financial instruments (2)
+Added: 157,550 — 157,550 —
Radio conversion costs, net ( 4,078 ) 52,295 6,406 171,659
5 unchanged sentences
________________
+Added: (1) Represents an impairment charge associated with the Company’s Solar reporting unit.
+Added: Refer to Note 6 “Goodwill and Other Intangible Assets.”
+Added: (2) Represents the change in fair value of the Forward Contract (as defined and discussed in Note 10 “Equity”).
(3) 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.
1 unchanged sentence
ACQUISITIONS AND DISPOSITION
−Removed: During the six months ended June 30, 2022, total consideration related to business acquisitions was approximately $ 31 million, including approximately $ 15 million in shares of the Company’s common stock.
+Added: During the nine months ended September 30, 2022, total consideration related to business acquisitions was approximately $ 31 million, including approximately $ 15 million in shares of the Company’s common stock.
This resulted in the recognition of approximately $ 24 million of goodwill.
2 unchanged sentences
Total consideration was approximately $ 750 million, which consisted of cash paid of $ 142 million, net of cash acquired, and approximately 75.0 million unregistered shares of the Company’s common stock, par value of $ 0.01 per share, with a fair value of $ 569 million (the “Equity Consideration”), including $ 40 million related to approximately 5.3 million shares of the Company’s common stock that were unissued as of the acquisition date (the “Delayed Shares”).
−Removed: 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.
−Removed: In June 2022, approximately 2.6 million shares of the Delayed Shares were issued.
−Removed: The remaining Delayed Shares are expected to be issued in equal installments in September and December 2022.
−Removed: There were no material adjustments to the preliminary purchase price allocation during the six months ended June 30, 2022.
+Added: The total fair value of the Equity Consideration 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.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
−Removed: During the six months ended June 30, 2022, proceeds related to disposal activities totaled approximately $ 27 million, resulting in a gain of approximately $ 10 million recognized in selling, general, and administrative expenses in the Condensed Consolidated Statements of Operations.
+Added: The Company issued approximately 2.6 million shares of the Delayed Shares in June 2022 and approximately 1.3 million shares of the Delayed Shares in September 2022.
+Added: The remaining Delayed Shares are expected to be issued in December 2022.
+Added: There were no material adjustments to the preliminary purchase price allocation during the nine months ended September 30, 2022.
+Added: Refer to Note 6 “Goodwill and Other Intangible Assets” for information on an impairment loss recognized during the third quarter of 2022 associated with goodwill acquired in the ADT Solar Acquisition.
+Added: During the nine months ended September 30, 2022, proceeds related to disposal activities totaled approximately $ 27 million, resulting in a gain of approximately $ 10 million recognized in selling, general, and administrative expenses.
EQUITY METHOD INVESTMENTS
The Company uses the equity method of accounting to account for an investment in which it has the ability to exercise significant influence but does not control.
−Removed: The carrying amount of the investment is reflected in other assets in the Condensed Consolidated Balance Sheets and is subsequently adjusted to recognize the Company’s proportionate share of the investee’s net income or loss, which is reflected in equity in net earnings (losses) of equity method investee in the Condensed Consolidated Statements of Operations.
+Added: The carrying amount of the investment is reflected in other assets.
+Added: The Company recognizes its proportionate share of the investee’s net income or loss in equity in net earnings (losses) of equity method investee.
The Company evaluates an equity method investment whenever events or changes in circumstances indicate the carrying amounts of such investments may be impaired.
4 unchanged sentences
As part of the initial funding at closing, the Company contributed cash of approximately $ 11 million (the “Initial Contribution”).
−Removed: As of June 30, 2022, Canopy did not have any common stock equivalents or dilutive securities that would, if converted, exercised, or issued, significantly change the Company’s proportionate share of Canopy’s net assets or net income or loss.
+Added: As of September 30, 2022, Canopy did not have any common stock equivalents or dilutive securities that would, if converted, exercised, or issued, significantly change the Company’s proportionate share of Canopy’s net assets or net income or loss.
Variable Interest Entity (“VIE”)
−Removed: The Company accounts for its investment in Canopy under the equity method of accounting.
−Removed: In addition, Canopy meets the definition of a VIE, as the Company holds a variable interest through its 40 % investment held in Canopy’s preferred class of equity (the “Preferred Units”) and fees received under the Canopy Commercial Agreements described below.
+Added: Canopy meets the definition of a VIE because the Company holds a variable interest through its 40 % investment in Canopy’s preferred class of equity (the “Canopy Investment”) and fees received under the Canopy Commercial Agreements described below.
The Company is not the primary beneficiary, and therefore, does not consolidate Canopy’s assets, liabilities, and financial results of operations.
+Added: As a result, the Company accounts for its investment in Canopy under the equity method of accounting.
The Company records its proportionate share of Canopy’s net income or loss on a one-month delay.
−Removed: As of June 30, 2022, the carrying amount of the Company’s investment in Canopy was approximately $ 10 million and is presented in other assets in the Condensed Consolidated Balance Sheets.
+Added: As of September 30, 2022, the Canopy Investment’s carrying amount was approximately $ 8 million and is presented in other assets.
The balance reflects the Initial Contribution as well as the Company’s proportionate share of Canopy’s net loss during the period.
−Removed: As of June 30, 2022, Canopy’s assets and liabilities primarily consisted of approximately $ 20 million of cash, the majority of which was received from the initial contributions made by the Company and Ford.
+Added: As of September 30, 2022, Canopy’s net assets primarily consisted of cash.
Canopy Commercial Agreements
−Removed: In connection with the investment in Canopy, the Company entered into various commercial agreements (the “Canopy Commercial Agreements”) through which it will be performing various services on behalf of Canopy, including supply chain support, product engineering support, and monitoring services for Canopy customers.
−Removed: The Company is also party to a trade name licensing agreement with Canopy.
+Added: In connection with the Canopy Investment, the Company entered into various commercial agreements (the “Canopy Commercial Agreements”) through which it will be performing various services on behalf of Canopy, including supply chain support, product engineering support, and monitoring services for Canopy customers.
+Added: The Company and Canopy are also parties to a trade name licensing agreement.
The impact to the condensed consolidated financial statements from the Canopy Commercial Agreements was not material for the periods presented.
7 unchanged sentences
16,863 6,816 16,110 39,789
+Added: Impairment (2)
+Added: — — ( 149,385 ) ( 149,385 )
Disposition — ( 11,731 ) — ( 11,731 )
−Removed: Balance as of June 30, 2022 $ 4,933,102 $ 327,918 $ 706,404 $ 5,967,424
+Added: Balance as of September 30, 2022 $ 4,932,695 $ 327,930 $ 561,451 $ 5,822,076
________________
(1) Includes the impact of measurement period adjustments.
−Removed: During the six months ended June 30, 2022, measurement period adjustments were not material.
−Removed: The Company had no accumulated goodwill impairment losses as of June 30, 2022 or December 31, 2021.
+Added: During the nine months ended September 30, 2022, measurement period adjustments were not material.
+Added: (2) The Company had no accumulated goodwill impairment losses as of December 31, 2021.
+Added: Solar Goodwill Impairment
+Added: As discussed in the Company’s 2021 Annual Report, the Company acquired ADT Solar in December 2021 and assigned all goodwill to the newly created Solar reporting unit.
+Added: During the third quarter of 2022, as a result of ADT Solar’s underperformance of recent operating results in successive quarters relative to expectations, as well as current macroeconomic conditions, including the impact of the Federal Reserve further increasing the risk-free interest rate, the Company performed an interim impairment quantitative assessment on the Solar reporting unit as of September 30, 2022.
+Added: Based on the results of the Company’s interim goodwill impairment quantitative analysis, the Company recorded a non-cash goodwill impairment charge of $ 149 million in the Condensed Consolidated Statements of Operations during the third quarter of 2022.
+Added: The Company estimated the fair value of the Solar reporting unit using the income approach, which included significant assumptions such as forecasted revenue, Adjusted EBITDA margins, and discount rates, as well as other assumptions including operating expenses and cash flows.
+Added: In developing these assumptions, the Company relied on various factors including operating results, business plans, economic projections, anticipated future cash flows, and other market data.
+Added: Examples of events or circumstances that could reasonably be expected to negatively affect the underlying judgments and factors may include such items as a prolonged downturn in the business environment, changes in economic conditions that significantly differ from the Company’s assumptions in timing or degree, volatility in equity and debt markets resulting in higher discount rates, and unexpected regulatory changes.
+Added: There are inherent uncertainties related to these judgments and factors that may ultimately impact the estimated fair value determinations.
+Added: As the carrying value of the Solar reporting unit approximates its fair value following the impairment charge, the Solar reporting unit is considered at risk of future impairment.
+Added: If the Company’s assumptions are not realized, or if there are future changes in any of the assumptions due to a change in economic conditions or otherwise, it is possible that a further impairment charge may need to be recorded in the future.
+Added: AND SUBSIDIARIES
+Added: NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Other Intangible Assets
−Removed: June 30, 2022 December 31, 2021
+Added: September 30, 2022 December 31, 2021
(in thousands) Gross Carrying
19 unchanged sentences
Other ( 1,637 )
−Removed: Balance as of June 30, 2022 $ 2,858,353
+Added: Balance as of September 30, 2022 $ 2,829,916
________________
(1) The weighted-average amortization period for customer contract additions was 14 years.
−Removed: During the six months ended June 30, 2022, the Company paid $ 342 million related to customer contract additions under the Company’s 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.
−Removed: AND SUBSIDIARIES
−Removed: NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
−Removed: Contracts and related customer relationships includes customer accounts purchased from certain other third parties during the six months ended June 30, 2022 for an aggregate contractual purchase price of $ 84 million, subject to reduction based on customer retention.
−Removed: The Company paid initial cash at the closings in the aggregate amount of $ 63 million, which is included in the payments for dealer generated customer accounts and bulk account purchases described above.
−Removed: Additionally, the Company retired certain customer relationship intangible assets acquired in the ADT Acquisition that became fully amortized during the six months ended June 30, 2022.
+Added: During the nine months ended September 30, 2022, the Company paid $ 500 million related to customer contract additions under the Company’s 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.
+Added: Contracts and related customer relationships includes customer accounts purchased from certain other third parties during the nine months ended September 30, 2022 for an aggregate contractual purchase price of $ 101 million, subject to reduction based on customer retention.
+Added: The Company paid initial cash in the aggregate amount of $ 78 million at the closings, which is included in the payments for dealer generated customer accounts and bulk account purchases described above.
+Added: Additionally, the Company retired certain customer relationship intangible assets acquired in the ADT Acquisition that became fully amortized during the nine months ended September 30, 2022.
Aggregate Amortization Expense:
−Removed: Three Months Ended June 30, Six Months Ended June 30,
+Added: Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2022 2021 2022 2021
Definite-lived intangible asset amortization expense $ 215,239 $ 301,828 $ 717,924 $ 901,363
+Added: AND SUBSIDIARIES
+Added: NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company’s debt is comprised of the following (in thousands) :
Description Issued Maturity Interest Rate (1)
−Removed: Interest Payable June 30, 2022 December 31, 2021
+Added: Interest Payable September 30, 2022 December 31, 2021
First Lien Term Loan due 2026 9/23/2019 9/23/2026 Adj.
12 unchanged sentences
ADT Notes due 2042 7/5/2012 7/15/2042 4.875 % 1/15 and 7/15 21,896 21,896
−Removed: Receivables Facility 3/5/2020 5/20/2027 SOFR + 0.85 %
+Added: Receivables Facility 3/5/2020 8/20/2027 Adj.
+Added: Daily SOFR + 0.85 %
Monthly 329,655 199,056
14 unchanged sentences
(3) Refer to Note 14 “Leases” for additional information regarding the Company’s finance leases.
+Added: Significant changes in the Company’s debt during the nine months ended September 30, 2022 were as follows:
+Added: First Lien Credit Agreement
+Added: 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 the First Lien Revolving Credit Facility.
+Added: During the nine months ended September 30, 2022, the Company borrowed $ 480 million and repaid $ 505 million under its First Lien Revolving Credit Facility.
+Added: As of September 30, 2022, the Company had $ 575 million in available borrowing capacity under the First Lien Revolving Credit Facility.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
−Removed: Significant changes in the Company’s debt during the six months ended June 30, 2022 were as follows:
−Removed: First Lien Credit Agreement
−Removed: 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”).
−Removed: As of June 30, 2022 and December 31, 2021, the Company had $ 495 million and $ 550 million, respectively, in available borrowing capacity under the First Lien Revolving Credit Facility.
−Removed: During the six months ended June 30, 2021, the Company borrowed $ 380 million and repaid $ 325 million under its First Lien Revolving Credit Facility.
+Added: Term Loan A Facility
+Added: In September 2022, Prime Security Services Borrower, LLC (“Prime Borrower”), a Delaware limited liability company and a wholly owned indirect subsidiary of the Company, as borrower, and The ADT Corporation, a Delaware corporation and a wholly owned direct subsidiary of Prime Borrower (together with Prime Borrower, the “Term Loan A Facility Borrowers”), entered into a debt commitment letter (the “Commitment Letter”) with various lenders, pursuant to which the lenders have committed, at the option of the Term Loan A Facility Borrowers (in their sole discretion) and subject to the satisfaction or waiver of customary conditions, to provide the Term Loan A Facility Borrowers up to an aggregate principal amount of $ 600 million of term loans under a senior secured term loan A facility (the “Term Loan A Facility”) under a term loan credit agreement (the “Term Loan A Credit Agreement”) on or before March 15, 2023 (the “Commitment Termination Date”).
+Added: On or before the Commitment Termination Date, the Term Loan A Facility Borrowers may, but are not required to, execute the Term Loan A Credit Agreement and incur indebtedness under the Term Loan A Facility (the “Execution Date”).
+Added: Additionally, at the option of the Term Loan A Facility Borrowers, the commitments set forth in the Commitment Letter may be terminated at any time prior to the Commitment Termination Date.
+Added: The proceeds of any borrowings under the Term Loan A Facility are required to be used to redeem a portion of the 4.125 % senior notes due June 15, 2023 issued by the ADT Corporation (the “ADT Notes due 2023”).
+Added: The Term Loan A Facility will have a maturity date of five years from the Execution Date and will be subject to a springing maturity of 91 days prior to the maturity date of certain long-term indebtedness of Prime Borrower and its subsidiaries if, on such date, the aggregate principal amount of such indebtedness equals or exceeds $ 100 million.
+Added: The Term Loan A Facility will require scheduled quarterly principal payments in annual amounts equal to 5.00 % of the original principal amount of the Term Loan A Facility, with the balance payable at maturity.
+Added: The Term Loan A Facility Borrowers may make voluntary prepayments on the Term Loan A Facility at any time prior to maturity at par.
+Added: Borrowings under the Term Loan A Facility, if any, will bear interest at a rate equal to, at Prime Borrower’s option, either (a) a term SOFR rate plus an adjustment of 0.10 % (“Adjusted SOFR”) or (b) a base rate (“Base Rate”) determined by reference to the highest of (i) the federal funds rate plus 0.50 % per annum, (ii) the prime rate published by The Wall Street Journal, and (iii) the one-month Adjusted SOFR plus 1.00 % per annum , in each case, plus an applicable margin of 2.50 % per annum for Adjusted SOFR loans and 1.50 % per annum for Base Rate loans, subject to adjustments based on certain specified net first lien leverage ratios.
+Added: Indebtedness incurred under the Term Loan A Facility will be guaranteed, jointly and severally, on a senior secured first-priority basis, by substantially all of Prime Borrower’s wholly owned material domestic subsidiaries, and by Prime Borrower’s direct parent, on a limited recourse basis, and will be secured by a pledge of Prime Borrower’s capital stock directly held by its direct parent and by first-priority security interests in substantially all of the assets of Prime Borrower and the subsidiary guarantors, in each case subject to certain permitted liens and exceptions.
+Added: The Term Loan A Facility will be subject to customary mandatory prepayment provisions, covenants and restrictions, including a financial maintenance covenant requiring the Term Loan A Facility Borrowers to comply as of the last day of each fiscal quarter with a specified maximum consolidated net first lien leverage ratio.
+Added: As of September 30, 2022, the Company has not incurred indebtedness under the Term Loan A Facility.
+Added: Fees associated with the Term Loan A Facility were not material during the three and nine months ended September 30, 2022.
ADT Notes due 2023
−Removed: As of June 30, 2022, the Company had an outstanding balance of $ 700 million under its notes due 2023 (the “ADT Notes due 2023”) that was classified as a current liability, net of any unamortized debt discount, in the Condensed Consolidated Balance Sheets.
−Removed: The Company is in the process of seeking financing to replace the ADT Notes due 2023 prior to June 15, 2023, which is the maturity date.
+Added: As of September 30, 2022, the Company had an outstanding balance of $ 700 million under its ADT Notes due 2023 that was classified as a current liability, net of any unamortized debt discount.
+Added: The Company is required to use borrowings under the Term Loan A Facility to redeem a portion of the ADT Notes due 2023 and pay related fees and expenses incurred in connection with the transaction.
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.
+Added: AND SUBSIDIARIES
+Added: NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Receivables Facility permits up to $ 400 million of uncommitted financing secured by the Company’s retail installment contract receivables owned by the SPE.
1 unchanged sentence
On a monthly basis, the segregated account is utilized to make required principal, interest, and other payments due under the Receivables Facility.
−Removed: 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.
+Added: The segregated account is considered restricted cash, and any outstanding balance is reflected in prepaid expenses and other current assets.
In May 2022, the Company 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.
−Removed: During the six months ended June 30, 2022, the Company received proceeds of $ 140 million under the Receivables Facility and repaid $ 47 million, which are reflected as cash flows from financing activities in the Condensed Consolidated Statements of Cash Flows.
−Removed: As of June 30, 2022 and December 31, 2021, the Company had an uncommitted available borrowing capacity under the Receivables Facility of $ 108 million and $ 201 million, respectively.
−Removed: The Receivables Facility did not have a material impact to the Condensed Consolidated Statements of Operations during the six months ended June 30, 2022 and 2021.
+Added: During the nine months ended September 30, 2022, the Company received proceeds of $ 212 million and repaid $ 81 million under the Receivables Facility.
+Added: As of September 30, 2022, the Company had an uncommitted available borrowing capacity under the Receivables Facility of $ 70 million.
+Added: The Receivables Facility did not have a material impact to the Condensed Consolidated Statements of Operations during the three and nine months ended September 30, 2022 and 2021, respectively.
Variable Interest Entity
2 unchanged sentences
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.
−Removed: AND SUBSIDIARIES
−Removed: NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The SPE meets the definition of a 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.
−Removed: As such, the SPE’s assets, liabilities, and financial results of operations are consolidated in the Company’s condensed consolidated financial statements.
−Removed: As of June 30, 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 $ 402 million and $ 299 million, respectively, and borrowings under the Receivables Facility, as presented above.
+Added: As such, the Company consolidates the SPE’s assets, liabilities, and financial results of operations.
+Added: The SPE’s assets and liabilities primarily consist of a portion of the Company’s unbilled retail installment contract receivables, net, as discussed in Note 2 “Revenue and Receivables,” and borrowings under the Receivables Facility, as presented above.
SOFR Transition
−Removed: By June 2023, the forward LIBOR will be replaced with SOFR (the “SOFR Transition Date”), at which point the applicable benchmark for all existing and new issuances under the Company’s current debt instruments with a variable rate component will be based on SOFR.
−Removed: 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.
−Removed: However, any modification, such as a repricing entered into after December 31, 2021, will require transition to SOFR.
−Removed: 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.
+Added: By June 2023 (the “SOFR Transition Date”), SOFR will replace the forward LIBOR as the applicable benchmark rate for all existing and future issuances of the Company’s debt instruments with a variable rate component.
+Added: Existing instruments under the First Lien Credit Agreement will continue to be based on LIBOR until the SOFR Transition Date, unless transitioned to SOFR prior to such date pursuant to the terms of the First Lien Credit Agreement.
+Added: In addition, any modification, such as a repricing, or any new debt issuances with a variable rate component, will utilize SOFR.
DERIVATIVE FINANCIAL INSTRUMENTS
3 unchanged sentences
• Not designated as cash flow hedges:
−Removed: Unrealized gains and losses are recognized in interest expense, net, in the Condensed Consolidated Statements of Operations.
+Added: Unrealized gains and losses are recognized in interest expense, net.
• Designated as cash flow hedges:
−Removed: 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.
+Added: Unrealized gains and losses are recognized as a component of accumulated other comprehensive income (loss) (“AOCI”) and are reclassified into interest expense, net, in the same period in which the related interest on debt affects earnings.
+Added: AND SUBSIDIARIES
+Added: NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For interest rate swap contracts that have been de-designated as cash flow hedges and for which forecasted cash flows are:
3 unchanged sentences
Unrealized gains and losses previously recognized as a component of AOCI are immediately reclassified into interest expense, net.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: The Company’s interest rate swaps as of June 30, 2022 consisted of the following (in thousands) :
+Added: 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.
+Added: Interest Rate Swaps:
+Added: 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.
+Added: In April 2022, the Company’s January and February 2019 interest rate swaps with an aggregate notional amount of $ 425 million reached maturity.
+Added: The impact related to this was not material.
+Added: As of September 30, 2022, t he Company’s interest rate swaps consisted of the following (in thousands) :
Execution Maturity Designation Notional Amount
October 2019 September 2026 Not designated $ 2,800,000
−Removed: During April 2022, the Company’s January and February 2019 interest rate swaps with an aggregate notional amount of $ 425 million reached maturity.
−Removed: The impact related to this was not material.
−Removed: AND SUBSIDIARIES
−Removed: NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Fair Value of Interest Rate Swaps:
Balance Sheet Classification (in thousands)
−Removed: June 30, 2022 December 31, 2021
+Added: September 30, 2022 December 31, 2021
Prepaid expenses and other current assets $ 58,928 $ —
3 unchanged sentences
Unrealized Gain (Loss) on Interest Rate Swaps:
−Removed: Three Months Ended June 30, Six Months Ended June 30,
+Added: Three Months Ended September 30, Nine Months Ended September 30,
Statement of Operations Classification (in thousands)
2 unchanged sentences
Reclassifications out of AOCI:
−Removed: Amounts reclassified out of AOCI associated with previously designated cash flow hedges were as follows:
−Removed: Three Months Ended June 30, Six Months Ended June 30,
+Added: The following reclassifications out of AOCI relate to previously designated cash flow hedges:
+Added: Three Months Ended September 30, Nine Months Ended September 30,
( in thousands )
2 unchanged sentences
Reclassifications to income tax benefit $ ( 1,301 ) $ ( 3,791 ) $ ( 6,915 ) $ ( 11,197 )
+Added: As of September 30, 2022 and December 31, 2021, AOCI, net of tax, related to previously designated cash flow hedges was $ 50 million and $ 71 million, respectively.
+Added: As of September 30, 2022, approximately $ 20 million of AOCI associated with previously designated cash flow hedges is estimated to be reclassified to interest expense, net, within the next twelve months.
+Added: AND SUBSIDIARIES
+Added: NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Other Information
−Removed: As of June 30, 2022 and December 31, 2021, AOCI, net of tax, related to previously designated cash flow hedges was $ 54 million and $ 71 million, respectively.
−Removed: As of June 30, 2022, approximately $ 21 million of AOCI associated with previously designated cash flow hedges is estimated to be reclassified to interest expense, net, within the next twelve months.
−Removed: During the six months ended June 30, 2022 and 2021, the Company paid $ 25 million and $ 28 million, respectively, related to settlements on interest rate swap contracts that included an other-than-insignificant financing element at inception.
+Added: During the nine months ended September 30, 2022 and 2021, the Company paid $ 27 million and $ 42 million, respectively, related to settlements on interest rate swap contracts that included an other-than-insignificant financing element at inception.
Unrecognized Tax Benefits
1 unchanged sentence
federal, state and local, and foreign jurisdictions.
−Removed: During the six months ended June 30, 2022, the Company did not have a material change to its unrecognized tax benefits.
+Added: During the nine months ended September 30, 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.
1 unchanged sentence
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.
−Removed: AND SUBSIDIARIES
−Removed: NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
−Removed: The Company’s 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 %.
−Removed: 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.
−Removed: The Company’s 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 %.
−Removed: 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.
−Removed: The Company’s 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 %.
−Removed: 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.
−Removed: The Company’s 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 %.
+Added: The Company’s income tax expense for the three months ended September 30, 2022 was $ 2 million, resulting in an effective tax rate for the period of ( 1.3 )%.
+Added: The effective tax rate primarily represents the federal statutory rate of 21.0 % plus a state statutory tax rate, net of federal benefits, of 6.5 %, favorable impacts from research and development (“R&D”) credits and other items, partially offset by an unfavorable impact related to the fair value adjustment of the Forward Contract.
+Added: 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 %.
+Added: 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 %.
+Added: The Company’s income tax expense for the nine months ended September 30, 2022 was $ 59 million, resulting in an effective tax rate for the period of 71.3 %.
+Added: The effective tax rate primarily represents the federal statutory rate of 21.0 %, a state statutory tax rate, net of federal benefits, of 5.0 %, unfavorable impacts related to the fair value adjustment of the Forward Contract and other items, partially offset by favorable impacts from R&D credits and other items.
+Added: 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 tax 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.
8 unchanged sentences
Under IRC Section 174, specified research and experimentation expenditures must now be capitalized and amortized.
+Added: AND SUBSIDIARIES
+Added: NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
+Added: Inflation Reduction Act
+Added: The Inflation Reduction Act (the “IRA”) was signed into law in August 2022.
+Added: The IRA, among other provisions, implements (i) a 15% corporate alternative minimum tax (“CAMT”) on book income for corporations whose average annual adjusted financial statement income during the most recently-completed three-year period exceeds $1.0 billion, (ii) a 1% excise tax on net stock repurchases, and (iii) several tax incentives to promote clean energy including an extension of the investment tax credit.
+Added: Both the CAMT and the excise tax provisions are effective for tax years beginning after December 31, 2022, and as of September 30, 2022, the Company does not anticipate any material impact.
Common Stock and Class B Common Stock
1 unchanged sentence
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.
−Removed: 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”).
+Added: 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.
Each share of Class B Common Stock has equal status and rights to dividends as a share of Common Stock.
−Removed: The holders of Class B Common Stock have one vote for each share of Class B Common Stock held on all matters on which stockholders are entitled to vote generally except for voting on the election, appointment, or removal of directors of the Company.
+Added: The holder of Class B Common Stock has one vote for each share of Class B Common Stock held on all matters on which stockholders are entitled to vote generally except for voting on the election, appointment, or removal of directors of the Company.
Additionally, each share of Class B Common Stock will immediately become convertible into one share of Common Stock, at the option of the holder, subject to certain timing and restrictions.
+Added: State Farm Strategic Investment and Tender Offer
+Added: On September 5, 2022, the Company entered into a securities purchase agreement with State Farm Fire & Casualty Company (“State Farm”) (the “State Farm Securities Purchase Agreement”), pursuant to which the Company agreed to issue and sell in a private placement to State Farm 133,333,333 shares of the Company’s Common Stock (the “State Farm Shares”) at a per share price of $ 9.00 for an aggregate purchase price of $ 1.2 billion (the “State Farm Strategic Investment”).
+Added: On September 12, 2022, and in connection with the State Farm Strategic Investment, the Company commenced a tender offer to purchase up to 133,333,333 shares of the Company’s Common Stock (including shares issued upon conversion of shares of Class B Common Stock ) (the “Tender Shares”) at a price of $ 9.00 per share (the “Tender Offer”) using proceeds from the State Farm Strategic Investment.
+Added: The State Farm Strategic Investment closed on October 13, 2022 (the “Closing”), and the Company issued and sold the State Farm Shares at a price of $ 9.00 per share.
+Added: After giving effect to the State Farm Strategic Investment and the Tender Offer, State Farm owned approximately 15 % of the Company’s issued and outstanding Common Stock (assuming conversion of Class B Common Stock), and as a result, became a related party at the Closing.
+Added: State Farm Investor Rights Agreement
+Added: At the Closing, the Company and State Farm entered into an Investor Rights Agreement (the “State Farm Investor Rights Agreement”), pursuant to which the Board of Directors of the Company (the “Board”) increased its size by one director and appointed a designee of State Farm as a member of the Board.
+Added: Pursuant to the terms of the State Farm Investor Rights Agreement, State Farm will also be bound by customary transfer and standstill restrictions and drag-along rights, and be afforded customary registration rights with respect to the State Farm Shares.
+Added: In particular, State Farm (a) will be prohibited, subject to certain customary exceptions, from transferring any of the State Farm Shares until the earlier of (i) the three-year anniversary of the Closing and (ii) the date on which the State Farm Development Agreement has been validly terminated, other than in the event of termination by the Company for a material breach thereof by State Farm, and (b) will be subject to certain standstill restrictions, including that State Farm will be restricted from acquiring additional equity securities of the Company if such acquisition would result in State Farm (and its affiliates) acquiring beneficial ownership in excess of 18 % of the issued and outstanding Common Stock, taking into account on an as-converted
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
+Added: basis the issued and outstanding Class B Common Stock, until five (5) days after the date that no designee of State Farm serves on the Board and State Farm has no rights (or has irrevocably waived its right) to nominate a designee to the Board.
+Added: Notwithstanding the standstill restrictions described above, State Farm will not be restricted from acquiring shares of Common Stock or other equity securities of the Company from Prime Security Services TopCo Parent, L.P.
+Added: and its affiliates so long as State Farm and its affiliates would not, subject to certain exceptions, beneficially own in excess of 25 % of the issued and outstanding Common Stock, taking into account on an as-converted basis the issued and outstanding Class B Common Stock, as a result of such acquisition.
+Added: In addition, under the terms of the State Farm Investor Rights Agreement, in the event that the Company proposes to issue and sell shares of Common Stock, Class B Common Stock, or other equity securities of the Company to certain homeowners’ insurance and reinsurance companies, State Farm will have a right of first refusal with respect to such proposed issuance and sale on the same terms and conditions (the “ROFR”).
+Added: The ROFR will terminate upon the earliest to occur of (i) State Farm and its permitted transferees no longer collectively owning shares of Common Stock equal to at least 50 % of the State Farm Shares, (ii) the termination of the State Farm Development Agreement by the Company for a material breach by State Farm and (iii) to the extent that the State Farm Development Agreement does not remain in effect on such date, the five (5) year anniversary of the Closing.
+Added: State Farm Development Agreement
+Added: At the Closing, the Company, ADT LLC (an indirect wholly owned subsidiary of the Company), and State Farm entered into a Development Agreement (the “State Farm Development Agreement”) pursuant to which State Farm committed up to $ 300 million to an opportunity fund that will fund certain product and technology innovation, customer growth, and marketing initiatives to be agreed between State Farm and the Company (the “Opportunity Fund”).
+Added: Additionally at Closing, the Company received $ 100 million of the Opportunity Fund, which will be restricted until such time as the Company uses the funds in accordance with the State Farm Development Agreement.
+Added: The Company’s use of the funds is also subject to approval by State Farm.
+Added: Concurrently with the execution of the State Farm Securities Purchase Agreement, (i) Apollo delivered to the Company a Tender and Support Agreement, pursuant to which Apollo agreed to collectively tender (and not withdraw) no fewer than 133,333,333 shares of Common Stock in the Tender Offer (the “Apollo Support Agreement”), and (ii) Google delivered to the Company a Support Agreement, pursuant to which Google agreed to not convert and tender any of its shares of Class B Common Stock.
+Added: The Tender Offer is considered a contingent forward purchase contract (the “Forward Contract”), which is recorded at fair value in the Condensed Consolidated Balance Sheet.
+Added: The fair value of the Forward Contract is estimated as the difference between the present value of the cash consideration to be paid and the value of the Company’s Common Stock to be tendered.
+Added: At the commencement of the Tender Offer, the Company recorded a liability and a reduction to additional paid in capital of $ 42 million, which is a non-cash financing activity for the three and nine months ended September 30, 2022.
+Added: Changes in fair value since inception through September 30, 2022 of $ 158 million are recognized in other income (expense).
+Added: As of September 30, 2022, the fair value of the Forward Contract was $ 199 million, which is reflected in accrued and other current liabilities.
+Added: Fees associated with the Forward Contract were not material during the three and nine months ended September 30, 2022.
+Added: In the fourth quarter of 2022, the Company expects to record a gain of approximately $ 95 million related to changes in fair value of the Forward Contract.
+Added: The Tender Offer expired on October 20, 2022.
+Added: On October 26, 2022, the Company used proceeds from the State Farm Strategic Investment to repurchase an aggregate of 133,333,333 shares of the Company’s Common Stock at a purchase price of $ 9.00 per share for $ 1.2 billion, excluding fees and expenses, subject to the terms and conditions described in the Offer to Purchase dated September 12, 2022 (as amended from time to time, the “Offer to Purchase”).
+Added: The Tender Shares were subject to the “odd lot” priority and proration provisions described in the Offer to Purchase as the Tender Offer was substantially over-subscribed.
+Added: No shares of Class B Common Stock were converted and tendered in the Tender Offer.
+Added: The portion of the Company’s issued and outstanding Common Stock (assuming conversion of Class B Common Stock) owned by Apollo prior and subsequent to the Tender Offer was 67 % and 55 %, respectively.
+Added: AND SUBSIDIARIES
+Added: NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
1 unchanged sentence
Declaration Date Record Date Payment Date Per Share Aggregate Per Share Aggregate
−Removed: Six Months Ended June 30, 2022
+Added: Nine Months Ended September 30, 2022
3/1/2022 3/17/2022 4/4/2022 $ 0.035 $ 29,842 $ 0.035 $ 1,916
5/5/2022 6/16/2022 7/5/2022 0.035 30,028 0.035 1,916
+Added: 8/4/2022 9/15/2022 10/4/2022 0.035 30,112 0.035 1,916
Total $ 0.105 $ 89,982 $ 0.105 $ 5,748
−Removed: Six Months Ended June 30, 2021
+Added: 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
+Added: 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
−Removed: Subsequent Event - On August 4, 2022, the Company 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.
+Added: Subsequent Event - On November 3, 2022, the Company announced a dividend of $ 0.035 per share to holders of Common Stock and Class B Common Stock of record on December 15, 2022, which will be distributed on January 4, 2023.
Accumulated Other Comprehensive Income (Loss)
Refer to Note 8 “Derivative Financial Instruments” for AOCI reclassifications associated with cash flow hedges.
−Removed: There were no other reclassifications out of AOCI.
+Added: There were no other material reclassifications out of AOCI.
SHARE-BASED COMPENSATION
−Removed: Share-Based Compensation Expense
−Removed: Share-based compensation expense recognized in selling, general, and administrative expenses in the Condensed Consolidated Statements of Operations was as follows:
−Removed: Three Months Ended June 30, Six Months Ended June 30,
+Added: Share-based compensation expense recognized in selling, general, and administrative expenses was as follows:
+Added: Three Months Ended September 30, Nine Months Ended September 30,
( in thousands )
2 unchanged sentences
Restricted Stock Units
−Removed: During the six months ended June 30, 2022, the Company granted approximately 6.3 million restricted stock units (“RSUs”) under its 2018 Omnibus Incentive Plan, as amended (the “2018 Plan”).
+Added: During the nine months ended September 30, 2022, the Company granted approximately 6.4 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.
3 unchanged sentences
Performance Share Units
−Removed: In June 2022, the Company issued 1.6 million performance share units (“PSUs”) in connection with a business combination that the Company will account for as share-based compensation.
+Added: In June 2022, the Company granted 1.6 million performance share units (“PSUs”) in connection with a business combination that the Company will account for as share-based compensation.
These PSUs contain both service and performance vesting conditions that must be met on an annual basis with the final vesting date in October 2025.
6 unchanged sentences
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.
−Removed: 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.
−Removed: 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.
−Removed: There were no potential shares of Class B Common Stock during the periods presented.
−Removed: For the three and six months ended June 30, 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 19.9 million shares and 18.6 million shares, respectively, from share-based compensation awards and approximately 0.1 million warrants, respectively, to purchase additional shares of Common Stock.
−Removed: Approximately 9.4 million unvested shares of the Company’s Common Stock 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 June 30, 2022.
−Removed: The computations of basic and diluted net income (loss) per share under the two-class method are shown below (in thousands, except per share amounts) :
+Added: 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 and excludes potentially dilutive securities whose effect would have been anti-dilutive.
Common Stock:
−Removed: Three Months Ended June 30, Six Months Ended June 30,
+Added: Potential shares of Common Stock include (i) incremental shares related to the vesting or exercise of share-based compensation awards, warrants, and other options to purchase additional shares of the Company’s Common Stock calculated using the treasury stock method and (ii) incremental shares of Common Stock issuable upon the conversion of Class B Common Stock.
+Added: Three Months Ended September 30, Nine Months Ended September 30,
+Added: in thousands, except per share amounts
2022 2021 2022 2021
Allocation of net income (loss) - basic $ ( 114,600 ) $ ( 101,850 ) $ 19,911 $ ( 263,957 )
−Removed: Dilutive effect (including conversion of Class B Common Stock) 2,149 — 4,156 —
+Added: Dilutive effect — — ( 50 ) —
Allocation of net income (loss) - diluted $ ( 114,600 ) $ ( 101,850 ) $ 19,861 $ ( 263,957 )
Weighted-average shares outstanding - basic 850,230 766,814 847,456 765,162
−Removed: Dilutive effect (including conversion of Class B Common Stock) 62,567 — 64,957 —
+Added: Dilutive effect — — 10,240 —
Weighted-average shares outstanding - diluted 850,230 766,814 857,696 765,162
1 unchanged sentence
Net income (loss) per share - diluted $ ( 0.13 ) $ ( 0.13 ) $ 0.02 $ ( 0.35 )
+Added: For the three months ended September 30, 2022 and the three and nine months ended September 30, 2021, all potential shares of Common Stock that would be dilutive were excluded from the diluted earnings per share calculations because their effects would have been anti-dilutive.
+Added: Excluded from the diluted earnings per share calculations for the nine months ended September 30, 2022 because their effects would have been anti-dilutive were (i) shares of Class B Common Stock, (ii) weighted-average shares of approximately 16.2 million primarily related to share-based compensation awards, and (iii) the impact from the State Farm Strategic Investment.
+Added: Additionally, the basic and diluted earnings per share computations for Common Stock exclude 9.4 million unvested shares as their vesting is contingent upon achievement of certain performance requirements which have not been met as of September 30, 2022.
AND SUBSIDIARIES
1 unchanged sentence
Class B Common Stock:
−Removed: Three Months Ended June 30, Six Months Ended June 30,
+Added: Three Months Ended September 30, Nine Months Ended September 30,
+Added: in thousands, except per share amounts
2022 2021 2022 2021
7 unchanged sentences
Net income (loss) per share - diluted $ ( 0.13 ) $ ( 0.13 ) $ 0.02 $ ( 0.35 )
+Added: ________________
+Added: (1) There were no potential shares of Class B Common Stock during the periods presented.
COMMITMENTS AND CONTINGENCIES
2 unchanged sentences
Google Commercial Agreement
−Removed: 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.
+Added: 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 the Company’s end-user security and automation platform.
1 unchanged sentence
In June 2022, the Company amended the Google Commercial Agreement to extend the date for the launch of the integrated Google Devices and Services until September 30, 2022.
−Removed: If the integrated Google Devices and Services are not launched by September 30, 2022, Google has the contractual right to require the Company, 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.
+Added: As of September 30, 2022, Google has the contractual right to require the Company, 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.
The Company has already begun providing Google video services and devices and will continue to do so on a non-integrated basis, and is working closely with Google toward an integrated solution.
+Added: The Google Commercial Agreement also specifies that each party shall contribute $ 150 million towards the joint marketing of devices and services;
+Added: customer acquisition;
+Added: training of the Company’s employees for the sales, installation, customer service, and maintenance for the product and service offerings;
+Added: and technology updates for products included in such offerings.
+Added: Each party is required to contribute such funds in three equal tranches, subject to the attainment of certain milestones.
+Added: In August 2022, the Company and Google executed an amendment to the Google Commercial Agreement (the “Google Commercial Agreement Amendment”), pursuant to which Google has agreed to commit an additional $ 150 million to fund growth, data and insights, product innovation and technology advancements, customer acquisition, and marketing, as mutually agreed by the Company and Google.
+Added: The additional success funds will be funded in three equal tranches, subject to the attainment of certain milestones.
+Added: AND SUBSIDIARIES
+Added: NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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.
−Removed: As of June 30, 2022, remaining commitments for those potential future customer account purchases were not material.
+Added: As of September 30, 2022, remaining commitments for those potential future customer account purchases were not material.
In the normal course of business, the Company is liable for contract completion and product performance.
−Removed: 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 June 30, 2022 and December 31, 2021, respectively.
+Added: 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 September 30, 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.
−Removed: AND SUBSIDIARIES
−Removed: NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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
−Removed: The Company is subject to various claims and lawsuits in the ordinary course of business, which include contractual disputes;
−Removed: worker’s compensation;
−Removed: employment matters;
−Removed: product, general, and auto liability claims;
−Removed: claims that the Company has infringed on the intellectual property rights of others;
−Removed: claims related to alleged security system failures;
−Removed: and consumer and employment class actions.
+Added: The Company is subject to various claims and lawsuits in the ordinary course of business, which include among other things commercial general liability claims, automobile liability claims, contractual disputes, worker’s compensation claims, labor law and employment claims, claims that the Company infringed on the intellectual property of others, and consumer and employment class actions.
The Company is also subject to regulatory and governmental examinations, information requests and subpoenas, inquiries, investigations, and threatened legal actions and proceedings.
6 unchanged sentences
The Company has not accrued for any losses for which the likelihood of loss cannot be assessed, is less than probable, or the range of possible loss cannot be estimated.
−Removed: As of June 30, 2022 and December 31, 2021, the Company’s accrual for ongoing claims and lawsuits within the scope of an insurance program totaled $ 101 million and $ 90 million, respectively.
+Added: As of September 30, 2022 and December 31, 2021, the Company’s accrual for ongoing claims and lawsuits within the scope of an insurance program totaled $ 94 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
−Removed: In April 2020, after investigating a customer inquiry, the Company self-disclosed that a former technician based in Dallas, Texas had, during service visits, added his personal email address to approximately 200 of the Company’s customers’ accounts, which provided this employee with varying levels of unauthorized personal access to such customers’ in-home security systems.
−Removed: In response, the Company initiated an affirmative outreach effort to notify all customers affected by this activity and to address their concerns.
−Removed: Since the disclosure, seven lawsuits have been filed against the Company, and the Company intervened in an eighth lawsuit filed against the former technician.
−Removed: Four of these lawsuits were originally filed as putative class actions and four as individual claims.
−Removed: The Company was also served with arbitration demands from fifteen separate customers affected by this incident.
−Removed: As of July 27, 2022, the Company and its insurers had settled or have reached agreements in principle to settle all pending lawsuits, arbitrations, and demands arising from this incident, with the exception of one immaterial lawsuit.
−Removed: This includes all of the Company’s previously reported matters, which were all filed and pending in the U.S.
−Removed: District Court for the Southern District of Florida, as follows:
−Removed: Shana Doty v.
−Removed: ADT LLC (filed May 18, 2020);
−Removed: Alexia Preddy v.
−Removed: ADT LLC (filed May 18, 2020), Randy Doty v.
−Removed: ADT LLC (filed April 2, 2021) and Stefanie Bryant, et al.
−Removed: ADT LLC (filed December 15, 2021).
−Removed: These matters alleged actions for damages relating to some or all of the following:
−Removed: 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.
+Added: In April 2020, after investigating a customer inquiry, the Company self-disclosed that a former technician based in Dallas, Texas had, during service visits, added his personal email address to certain of the Company’s customers’ accounts, which provided this employee with varying levels of unauthorized personal access to such customers’ in-home security systems.
+Added: As of September 30, 2022, the Company and its insurers had settled or have reached agreements in principle to settle all material pending lawsuits, arbitrations, and demands arising from this incident.
All such pending settlements and agreements are for monetary amounts within the Company’s insured levels.
15 unchanged sentences
(in thousands)
−Removed: June 30, 2022 December 31, 2021
+Added: September 30, 2022 December 31, 2021
Presentation and Classification:
10 unchanged sentences
_________________
−Removed: (1) Finance right-of-use assets are recorded net of accumulated depreciation of approximately $ 97 million and $ 78 million as of June 30, 2022 and December 31, 2021, respectively.
−Removed: Three Months Ended June 30, Six Months Ended June 30,
+Added: (1) Finance right-of-use assets are recorded net of accumulated depreciation of approximately $ 101 million and $ 78 million as of September 30, 2022 and December 31, 2021, respectively.
+Added: Three Months Ended September 30, Nine Months Ended September 30,
( in thousands )
9 unchanged sentences
Cash Flow and Supplemental Information:
−Removed: Six Months Ended June 30,
+Added: Nine Months Ended September 30,
( in thousands )
11 unchanged sentences
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.
−Removed: 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.
+Added: 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.
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.
1 unchanged sentence
RELATED PARTY TRANSACTIONS
−Removed: 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.
+Added: The Company’s related party transactions primarily relate to products and services received from, or monitoring and related services provided to, other entities affiliated with 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:
+Added: Upon initial funding of the Term Loan A Facility, the Company will owe fees to Apollo, which are not expected to be material, related to Apollo’s performance of placement agent services related to such debt.
Sunlight Financial LLC
−Removed: 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.” Total loans funded by Sunlight were approximately $ 131 million and $ 243 million, respectively, for the three and six months ended June 30, 2022.
−Removed: As of June 30, 2022, $ 6 million was reflected in accounts receivable, net, and $ 10 million was reflected in deferred revenue in the Condensed Consolidated Balance Sheets related to such funded loans.
−Removed: Additionally, the Company incurred $ 15 million and $ 30 million, respectively, of financing fees for the three and six months ended June 30, 2022.
−Removed: Rackspace US, Inc.
−Removed: 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.
−Removed: The master services agreement includes a minimum purchase commitment of $ 50 million over a seven year term.
−Removed: As of June 30, 2022, total purchases under this agreement since inception were approximately $ 12 million, with approximately $ 3 million and $ 6 million occurring during the three and six months ended June 30, 2022, respectively.
+Added: ADT Solar uses Sunlight Financial LLC (“Sunlight”), an entity affiliated with Apollo, to access certain loan products for ADT Solar customers, as discussed in Note 2 “Revenue and Receivables.”
+Added: Total loans funded by Sunlight were approximately $ 116 million and $ 359 million, respectively, for the three and nine months ended September 30, 2022.
+Added: As of September 30, 2022, approximately $ 42 million may be subject to a temporary clawback.
+Added: Additionally, the Company incurred $ 14 million and $ 44 million, respectively, of financing fees for the three and nine months ended September 30, 2022.
+Added: As of September 30, 2022, there were no significant amounts due to/from Sunlight.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
−Removed: TD SYNNEX Corporation
−Removed: The Company uses TD SYNNEX Corporation (“TD SYNNEX”), a related party controlled by Apollo, for certain technical services encompassing the purchase and support of IT equipment in the ordinary course of business.
−Removed: TD SYNNEX fees totaled approximately $ 0.4 million and $ 1.9 million during the three and six months ended June 30, 2022, respectively.
−Removed: Intrado Corporation
−Removed: The Company uses Intrado Corporation (“Intrado”), a related party controlled by Apollo, for certain technology and communications services in the ordinary course of business.
−Removed: The Company is party to an agreement with Intrado for the provision of certain emergency response and telecommunication services, which includes remaining commitments through 2025 of approximately $ 4 million as of June 30, 2022.
−Removed: Intrado fees totaled approximately $ 0.5 million and $ 1.2 million for the three and six months ended June 30, 2022, respectively.
−Removed: Alorica, Inc.
−Removed: The Company uses Alorica Inc.
−Removed: (“Alorica”), a related party controlled by Apollo, as a digital customer experience partner in the ordinary course of business.
−Removed: Alorica fees totaled approximately $ 0.9 million and $ 1.6 million during the three and six months ended June 30, 2022, respectively.
−Removed: The Company also provides monitoring and related services to Alorica in the ordinary course of business.
−Removed: Amounts received from Alorica during the three and six months ended June 30, 2022 were not material.
+Added: Rackspace US, Inc.
+Added: During October 2020, the Company entered into a master services agreement with Rackspace US, Inc.
+Added: (“Rackspace”), an entity affiliated with Apollo, for the provision of cloud storage, equipment, and services to facilitate the implementation of the Company’s cloud migration strategy for certain applications.
+Added: The master services agreement includes a minimum purchase commitment of $ 50 million over a seven year term, which can be satisfied through spend with other parties.
+Added: As of September 30, 2022, total purchases towards the satisfaction of this commitment were approximately $ 19 million since inception.
+Added: During the three and nine months ended September 30, 2022, the Company incurred fees to Rackspace of $ 3 million and $ 9 million, respectively.
Canopy is considered a related party under GAAP, as the Company accounts for its investment in Canopy under the equity method of accounting.
−Removed: Except for the transactions described in Note 5 “Equity Method Investments,” there were no other material related party transactions with Canopy during the period.
+Added: Except for the transactions described in Note 5 “Equity Method Investments,” there were no other significant related party transactions with Canopy during the period.
+Added: Other Transactions
+Added: During the nine months ended September 30, 2022, the Company incurred fees in the ordinary course of business with certain entities affiliated with Apollo including (i) $ 2.4 million for a digital customer experience partner;
+Added: (ii) $ 2.4 million for certain technical services encompassing the purchase and support of IT equipment;
+Added: and (iii) $ 1.7 million for certain technology and communications services.
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.