What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-11-03 compared with 2022-08-04 · 251 added, 153 removed, 267 unchanged (60% of the section changed)

4 unchanged sentences

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

• Overview and Basis of P resentation

• Overview and Basis of Presentation

• Factors Affecting Operating Results

• Key Perfor mance Indicators

• Key Performance Indicators

• Results of Operations

1 unchanged sentence

• Liquidity and Capital Resources

• Critical Accounting Polici es and Estimates

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

• Critical Accounting Estimates

• Cautionary Statements Regarding Forward-Looking Statements

OVERVIEW AND BASIS OF PRESENTATION

Business Overview

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

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

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

We believe solar is a logical extension of our offerings as it enhances our ability to deliver an integrated safe, smart, and sustainable home experience.

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

Basis of Presentation

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

Basis of Presentation and Segments

All financial information presented in this section has been prepared in U.S.

2 unchanged sentences

All intercompany transactions have been eliminated.

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

In addition, we use the equity method of accounting to account for our investment in Canopy (as defined below) as we have the ability to exercise significant influence but do not have control.

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

2 unchanged sentences

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

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

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

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

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

Refer to Note 3 “Segment Information” for additional information.

COVID-19 Pandemic Update

2 unchanged sentences

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

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

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

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

We anticipate maintaining sufficient liquidity and capital resources to continue (i) providing essential services, (ii) satisfying our debt requirements, and (iii) having the ability to return capital to our stockholders in the form of a regular quarterly dividend during this challenging macroeconomic environment.

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

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

We continue to consider the on-going and pervasive economic impact of the COVID-19 Pandemic in our assessment of our financial position, results of operations, and cash flows, as well as certain accounting estimates as of and for the periods presented.

However, the evolving and uncertain nature of the COVID-19 Pandemic, as well as any related economic or regulatory impacts, could materially impact our estimates and financial results in future reporting periods.

During the third quarter of 2022, Hurricanes Fiona and Ian impacted certain areas in which we operate and resulted in power outages and service disruptions to certain of our customers.

We will continue to monitor and do not anticipate any material impacts from these hurricanes.

FACTORS AFFECTING OPERATING RESULTS

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

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

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

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

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

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

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

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

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

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

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

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

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

For our subscriber-based offerings, our results are impacted by the mix of transactions under a Company-owned equipment model versus a customer-owned equipment model (referred to as outright sales), as there are different accounting treatments applicable to each model.

As we continue to build our partnership with Google LLC (“Google”), introduce new or enhance our current offerings, and refine our go-to-market approach, we expect to see a shift toward an increasing proportion of outright sales transactions, which will impact results in future periods.

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

Our ability to add new customers and grow our businesses is also impacted by the following:

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

4 unchanged sentences

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

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

Advances in technology are also helping us to improve our products and services and reduce our costs.

For example, our innovative virtual service support program (the “Virtual Assistance Program”), which launched for our residential customers in July 2021, provides our customers the ability to troubleshoot and resolve certain service issues through a live video stream with our skilled technicians.

This provides customers with more options for receiving certain services that best fit their lifestyles while reducing the cost for us to provide these services and lowering our carbon footprint by eliminating thousands of vehicle trips each day.

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

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

2 unchanged sentences

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

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

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

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

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

and (vi) other changes in prices, interest rates, or terms from our suppliers, vendors, or third-party lenders.

Changes in interest rates or terms from third-party lenders that provide loan products to our Solar customers are impacted by factors such as the Federal Reserve increasing the risk-free interest rate.

Refer to Note 6 “Goodwill and Other Intangible Assets” and Critical Accounting Estimates below for further discussion.

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

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

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

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

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

1 unchanged sentence

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

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

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

During 2022, we have seen favorable trends in gross customer revenue attrition primarily as a result of a lower volume of customer relocations, partially offset by an increase

in non-payment disconnects.

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

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

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

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

Other Events and Updates

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

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

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

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

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

• Google - 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.

We paid the majority of the first 50% of the deferred amount during the fourth quarter of 2021, and expect to pay the remainder by January 2, 2023.

Strategic Partnerships

Google Commercial Agreement

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

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

1 unchanged sentence

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

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

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

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

As of September 30, 2022, Google has the contractual right to require us, with certain exceptions, until such integration, to exclusively offer Google Devices and Services without integration for all new professional installations and for existing customers who do not have ADT Pulse or ADT Control interactive services.

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

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

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

3 unchanged sentences

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

• Canopy Investment - In April 2022, we closed on our previously announced transaction with Ford Motor Company (“Ford”) to form a new entity, SNTNL LLC (“Canopy”), which combines ADT’s professional security monitoring and Ford’s AI-driven video camera technology to help customers strengthen security of new and existing vehicles across automotive brands.

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

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

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

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

Updates Related to Existing and Potential Tax Legislation

In August 2022, we entered into 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 us and Google.

The additional success funds will be funded in three equal tranches, subject to the attainment of certain milestones.

Canopy Investment

In April 2022, together with Ford Motor Company (“Ford”), we formed a new entity, SNTNL LLC (“Canopy”), which combines ADT’s professional security monitoring and Ford’s AI-driven video camera technology, to help customers strengthen the security of new and existing vehicles across various automotive brands.

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

We have contributed approximately $11 million, which was part of the initial funding at closing.

In addition, we entered into several commercial agreements (the “Canopy Commercial Agreements”), which are discussed in Note 5 “Equity Method Investments.”

State Farm Strategic Investment and Tender Offer

As discussed in Note 10 “Equity,” in September 2022, we entered into a Securities Purchase Agreement with State Farm Fire & Casualty Company (“State Farm”) (the “State Farm Securities Purchase Agreement”), pursuant to which we agreed to issue and sell in a private placement to State Farm 133,333,333 shares of our 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”).

Also, in September 2022, in connection with the State Farm Strategic Investment, we commenced a tender offer to purchase up to 133,333,333 shares of our Common Stock (including shares issued upon conversion of Class B Common Stock) (the “Tender Shares”) at a price of $9.00 per share (the “Tender Offer”).

Concurrently with the execution of the State Farm Securities Purchase Agreement, (i) Apollo delivered to us 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 us a Support Agreement, pursuant to which Google agreed to not convert and tender any of its shares of Class B Common Stock.

The Tender Offer is considered a contingent forward purchase contract (the “Forward Contract”), and we recorded changes in fair value of $158 million in other income (expense) during the three months ended September 30, 2022.

On October 13, 2022, we issued and sold the State Farm Shares at a per share price of $9.00 and received $1.2 billion (the “Closing”).

The Tender Offer expired on October 20, 2022 (the “Tender Expiration Date”), and on October 26, 2022, we used proceeds from the State Farm Strategic Investment to repurchase an aggregate of 133,333,333 shares of our Common Stock at a purchase price of $9.00 per share, 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”).

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.

No shares of Class B Common Stock were converted and tendered in the Tender Offer.

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).

The portion of our 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.

Additionally, we entered into a Development Agreement with State Farm (the “State Farm Development Agreement”), pursuant to which State Farm committed up to $300 million to fund product and technology innovation, customer growth, and marketing initiatives.

Upon the Closing, we received $100 million of such commitment from State Farm, which is restricted until we use the funds in accordance with the State Farm Development Agreement.

Our use of the funds is also subject to approval by State Farm.

Radio Conversion Program

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

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

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

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

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

Tax Legislation

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

4 unchanged sentences

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

Potential Federal Tax Legislation

The White House released its fiscal year 2023 budget in March 2022, which includes a proposal to raise the corporate tax rate to 28%.

If the proposed tax rate increase is passed, the Company would need to revalue its deferred tax liabilities, which could further increase the Company’s effective tax rate.

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

Federal Tax Legislation

The Inflation Reduction Act (the “IRA”) was signed into law in August 2022.

The IRA, among other provisions, implements (i) a 15% corporate alternative minimum tax (the “CAMT”) on book income for corporations whose average annual adjusted financial statement income during the most recently completed three-year period exceeds $1 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 (the “ITC”).

Both the CAMT and the excise tax provisions are effective for tax years beginning after December 31, 2021.

As of September 30, 2022, we do not anticipate any material impact in the short-term at this time.

Under the IRA, the ITC was extended until 2032 to allow a qualifying homeowner to deduct 30% of the cost of installing residential solar systems from their U.S.

federal income taxes.

Under the current terms, the ITC will remain at 30% through the end of 2032 and be further reduced in increments down to 0.0% after the end of 2034, unless extended.

We believe this incentive will be favorable for our Solar business.

Potential for Future Valuation Allowance

6 unchanged sentences

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

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

While we have not reported any material changes to our valuation allowances as disclosed in our 2021 Annual Report, we may determine to do so in subsequent periods.

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

20 unchanged sentences

(in thousands, except as otherwise indicated)

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

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

Results of Operations:

7 unchanged sentences

Merger, restructuring, integration, and other 6,285 (6,723) 13,008 2,968 18,588 (15,620)

Goodwill impairment 149,385 — 149,385 149,385 — 149,385

Operating income (loss) 67,341 23,096 44,245 353,898 4,837 349,061

17 unchanged sentences

N/A — Not applicable.

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

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

Monitoring and Related Services Revenue:

Monitoring and related services revenue (“M&S Revenue”) is primarily comprised of revenue generated from providing recurring monthly monitoring and other services.

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

(in thousands)

6 unchanged sentences

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

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

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

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

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

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

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

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

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

As of September 30, 2022, our ending RMR balance was $372 million, up $16 million or 4% compared to the prior year, primarily driven by our CSB segment.

The increases in M&S Revenue for the three and nine months ended September 30, 2022, as compared to the prior year periods, were driven by higher RMR and reflect:

• an increase in average revenue per subscriber of 3%, as new and existing customers selected higher priced interactive and other services, and

• an increase in our subscriber base of 2% primarily due to subscriber growth initiatives and improvements in customer retention.

Gross customer revenue attrition was 12.6% as of September 30, 2022 compared to 13.4% as of September 30, 2021.

The improvement in gross customer revenue attrition was driven by a decrease in relocations and fewer voluntary disconnects primarily resulting from customer retention initiatives, partially offset by higher non-payment disconnects.

During the three and nine months ended September 30, 2022, the increases in CSB M&S Revenue, as compared to the prior year periods, were primarily due to increases in recurring revenue of $41 million and $116 million, respectively, driven by the improvements in RMR described above.

For the three and nine months ended September 30, 2022, the increases in Commercial M&S Revenue, as compared to the prior year periods, included:

• increases in non-contracted service revenue of $12 million and $32 million, respectively, driven by higher revenue per service call, and

• increases in recurring revenue of $3 million and $16 million, respectively, driven by improvements in average revenue per subscriber.

Installation, Product, and Other Revenue:

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

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

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

(in thousands)

4 unchanged sentences

Total installation, product, and other revenue $ 444,450 $ 218,613 $ 225,837 $ 1,323,139 $ 681,448 $ 641,691

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

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

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

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

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

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

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

The increase in total installation, product, and other revenue for the three and nine months ended September 30, 2022, as compared to the prior year periods, was primarily due to revenue from Solar installations, as shown above, as a result of the ADT Solar Acquisition in December 2021, and included a reduction of approximately $30 million in the first quarter of 2022 from the amortization of purchase accounting adjustments.

For the three months ended September 30, 2022, the increase in CSB installation, product, and other revenue included:

• an increase in the amortization of deferred subscriber acquisition revenue of $19 million due to an increase in ADT-owned transactions since the prior year period, and

• an increase in installation revenue on outright sales of $10 million primarily related to the sale of certain products in connection with our Google partnership.

For the nine months ended September 30, 2022, the increase in CSB installation, product, and other revenue included:

• an increase in the amortization of deferred subscriber acquisition revenue of $52 million due to an increase in ADT-owned transactions since the prior year period, partially offset by

• a net decrease in installation revenue of $21 million primarily driven by a lower volume of outright sales as a result of our transition to a predominately company-owned model in the first quarter of 2021.

For the three and nine months ended September 30, 2022, the increase in installation, product, and other revenue was primarily due to higher installation revenue of $17 million and $24 million, respectively, related to strong sales performance, despite supply chain delays.

Cost of Revenue:

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

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

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

(in thousands)

4 unchanged sentences

Total cost of revenue $ 494,321 $ 371,985 $ 122,336 $ 1,511,902 $ 1,134,736 $ 377,166

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

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

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

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

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

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

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

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

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

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

For the three months ended September 30, 2022, the decrease in CSB cost of revenue included:

• a decrease in field service and call center costs of $14 million, as compared to the prior year period, primarily driven by a lower volume of in-person service tickets as a result of cost savings initiatives such as our Virtual Assistance Program implemented in July 2021, despite rising costs and providing service to a larger number of customers, including a higher mix of interactive services, partially offset by

• an increase in installation costs of $5 million, as compared to the prior year period, due to a higher volume of outright sales transactions.

For the nine months ended September 30, 2022, the decrease in CSB cost of revenue included:

• a decrease in field service and call center costs of $27 million, as compared to the prior year period, primarily driven by a lower volume of in-person service tickets as a result of our Virtual Assistance Program described above, and

• a decrease in installation costs of $21 million, as compared to the prior year period, due to a lower volume of outright sales transactions.

For the three months ended September 30, 2022, the increase in Commercial cost of revenue included:

• an increase in installation costs of $11 million, and

• an increase in field service costs of $6 million.

For the nine months ended September 30, 2022, the increase in Commercial cost of revenue included:

• an increase in field service costs of $32 million, and

• an increase in installation costs of $11 million.

These increases were primarily attributable to an increase in installations and services performed in connection with strong sales performance as discussed above and reflect higher prices for materials, labor, and fuel.

Selling, General, and Administrative Expenses:

For the three and nine months ended September 30, 2022, the increases in selling, general, and administrative expenses (“SG&A”), as compared to the prior year periods, were primarily driven by:

• incremental expenses of approximately $71 million and $244 million, respectively, as a result of the ADT Solar Acquisition in December 2021,

• an increase in selling costs (excluding ADT Solar) of approximately $18 million and $39 million, respectively, primarily due to additional amortization of deferred subscriber acquisition costs, and

• increases in the provision for credit losses (excluding ADT Solar) of approximately $14 million and $33 million, respectively, primarily in our CSB segment due to lower provision in the prior year associated with impacts from the COVID-19 Pandemic.

These increases were partially offset by:

2 unchanged sentences

Depreciation and Intangible Asset Amortization:

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

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

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

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

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

• decreases in the amortization of customer relationship intangible assets of $100 million and $218 million, respectively.

The decrease in the amortization of customer relationship intangible assets was primarily due to certain assets acquired as part of the acquisition of The ADT Security Corporation in 2016 (the “ADT Acquisition”) becoming fully amortized beginning with the fourth quarter of 2021.

The remaining customer relationship intangible assets acquired as part of the ADT Acquisition will be fully amortized during 2023.

These decreases were partially offset by investments in subscriber growth resulting in:

• increases in the amortization of customer contracts acquired under our authorized dealer program and from other third parties of $14 million and $41 million, respectively, and

• increases in the depreciation of subscriber system assets of $10 million and $34 million, respectively.

Merger, Restructuring, Integration, and Other:

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

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

Goodwill Impairment:

For the three and nine months ended September 30, 2022, we recorded a goodwill impairment charge of $149 million associated with our Solar reporting unit, which was the result of an interim impairment analysis performed.

Refer to Note 6 “Goodwill and Other Intangible Assets” for further discussion.

Interest Expense, net:

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

For the three and nine months ended September 30, 2022, the decrease in interest expense, net was driven by higher unrealized gains of $85 million and $198 million, respectively, related to interest rate swap contracts not designated as cash flow hedges primarily due to fluctuations in the forward London Interbank Offered Rate (“LIBOR”).

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

Loss on Extinguishment of Debt:

During the three and nine months ended September 30, 2021, loss on extinguishment of debt of $37 million was related to the call premium and write-off of unamortized fair value adjustments in connection with the $1.0 billion redemption of the 3.50% notes due 2022 (“ADT Notes due 2022”) in August 2021 (“ADT Notes due 2022 Redemption”).

Other Income (Expense):

For the three and nine months ended September 30, 2022, other income (expense) primarily included the change in fair value of the Forward Contract related to the Tender Offer of $158 million.

In the fourth quarter of 2022, we expect to recognize a gain of approximately $95 million as a result of further adjustments to the fair value of the Forward Contract.

Refer to Note 10 “Equity” for additional information.

Income Tax Benefit (Expense):

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

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

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

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

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

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

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

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

The 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)%.

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.

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

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

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%.

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.

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.

13 unchanged sentences

(viii) radio conversion costs, net;

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

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.

There are material limitations to using Adjusted EBITDA.

2 unchanged sentences

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

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

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

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

7 unchanged sentences

Merger, restructuring, integration, and other 6,285 (6,723) 13,008 2,968 18,588 (15,620)

Goodwill impairment (1)

149,385 — 149,385 149,385 — 149,385

Loss on extinguishment of debt — 36,957 (36,957) — 37,113 (37,113)

Change in fair value of financial instruments (2)

157,550 — 157,550 157,550 — 157,550

Radio conversion costs, net (4,078) 52,295 (56,373) 6,406 171,659 (165,253)

4 unchanged sentences

________________

(1) Represents an impairment charge associated with our Solar reporting unit.

Refer to Note 6 “Goodwill and Other Intangible Assets.”

(2) Represents the change in fair value of the Forward Contract.

Refer to 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.

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

Adjusted EBITDA in total and by segment was as follows:

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

Adjusted EBITDA in total and by segment are set forth below.

As noted above, Adjusted EBITDA is our segment profit measure pursuant to U.S.

GAAP and is therefore not a non-GAAP financial measure with respect to our segments.

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

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

3 unchanged sentences

Adjusted EBITDA $ 619,941 $ 554,310 $ 65,631 $ 1,818,187 $ 1,638,306 $ 179,881

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

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

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

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

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

The drivers listed below exclude amounts that are outside of our definition of Adjusted EBITDA.

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

For the three and nine months ended September 30, 2022, respectively, the increases were primarily due to:

• higher M&S Revenue of $48 million and $141 million,

• lower advertising costs of $29 million and $69 million, and

• lower field service and call center costs of $14 million and $27 million.

The increases were partially offset, respectively, by:

• higher selling and general and administrative expenses of $20 million and $34 million, and

• higher provision for credit losses of $11 million and $27 million.

For the three and nine months ended September 30, 2022, respectively, the increase was primarily due to:

• higher M&S Revenue of $15 million and $48 million and

• higher installation revenue, net of the associated installation costs of $6 million and $13 million, partially offset by

• higher field service and call center costs of $6 million and $32 million, and

• higher provision for credit losses of $4 million and $6 million.

The remainder was primarily due to higher selling, general and administrative expenses.

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

LIQUIDITY AND CAPITAL RESOURCES

Liquidity and capital resources primarily consisted of the following:

(in thousands) June 30, 2022

(in thousands) September 30, 2022

Cash and cash equivalents $ 45,734

4 unchanged sentences

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

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

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

We are a highly leveraged company with significant debt service requirements and have both fixed-rate and variable-rate debt.

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

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

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

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

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

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

Our first lien term loan facility (the “First Lien Term Loan due 2026”) and First Lien Revolving Credit Facility are and will continue to be based on LIBOR until the SOFR Transition Date.

However, any future modification, such as a repricing, will require transition to SOFR.

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

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

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

Cash outflows for interest payments are not consistent between quarters, with larger outflows occurring in the first and third quarters, and may vary as a result of our variable rate debt.

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

The Secured Overnight Financing Rate (“SOFR”) will replace the forward LIBOR as the applicable benchmark rate for all existing and future issuances of our debt instruments with a variable rate component (the “SOFR Transition”) by June 2023 (the “SOFR Transition Date”).

Existing instruments under the First Lien Credit Agreement will continue to be based on LIBOR until the SOFR Transition Date.

However, any modification, such as a repricing, or any new debt issuances with a variable rate component, will utilize SOFR per the terms of the First Lien Credit Agreement.

As of September 30, 2022, we do not anticipate any material impacts from the SOFR Transition.

We are closely monitoring the impact of recent inflationary pressures and changes in interest rates on our cash position.

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

Material Cash Requirements

2 unchanged sentences

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

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

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

Off-Balance Sheet Arrangements

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

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

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

1 unchanged sentence

There have been no material changes to our long-term debt from those disclosed in our 2021 Annual Report, except as discussed below.

First Lien Credit Agreement

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

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

Refer to Note 7 “Debt” for further discussion on our debt agreements.

First Lien Revolving Credit Facility

During the nine months ended September 30, 2022, we borrowed $480 million and repaid $505 million, and as of September 30, 2022, we had no outstanding borrowings.

Term Loan A Facility

In September 2022, we entered into a debt commitment letter with various banks to provide 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”) on or before March 15, 2023 (the “Commitment Termination Date”) under a term loan credit agreement (the “Term Loan A Credit Agreement”).

We may execute the Term Loan A Credit Agreement and incur indebtedness under the Term Loan A Facility, or at our option, terminate the commitments at any time prior to the Commitment Termination Date.

The proceeds of any borrowings under the Term Loan A Facility are required to be used to redeem a portion of the ADT Notes due 2023 (as discussed below) and pay related fees and expenses.

As of September 30, 2022, we have not incurred indebtedness under the Term Loan A Facility.

Receivables Facility

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

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

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

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

During the nine months ended September 30, 2022, we received proceeds of $212 million and repaid $81 million, and as of September 30, 2022, the Receivables Facility had an outstanding balance of $330 million.

We are currently evaluating options for increasing our available borrowing capacity under the Receivables Facility.

ADT Notes due 2023

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

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

As of September 30, 2022, we had an outstanding balance of $700 million under our senior notes due 2023 (the “ADT Notes due 2023”) that was classified as a current liability, net of any unamortized discount.

We intend to use the proceeds from the issuance of the Term Loan A Facility to redeem a portion of the ADT Notes due 2023 during the first quarter of 2023 and redeem the remaining outstanding balance upon maturity, in both instances including the payment of related expenses, using available cash.

Debt Covenants

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

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

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

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

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

During the nine months ended September 30, 2022 and 2021, we declared aggregate dividends of $90 million ($0.035 per share) and $82 million ($0.035 per share) on our Common Stock, respectively, and $6 million ($0.035 per share) on our Class B Common Stock during both periods.

On November 3, 2022, we 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.

Cash Flow Analysis

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands) 2022 2021 $ Change

4 unchanged sentences

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

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

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

These activities were partially offset by:

• a decrease in payments related to radio conversion costs, net of the related incremental revenue, of $162 million, partially offset by

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

3 unchanged sentences

Cash Flows from Investing Activities

Cash flows used in investing activities increased primarily due to:

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

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

During the nine months ended September 30, 2022, the increase in cash flows used in investing activities as compared to the prior year primarily consisted of:

• an increase in net outflows of $54 million related to subscriber system assets expenditures as a result of more Company-owned transactions and our growth initiatives, as well as

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

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

Cash Flows from Financing Activities

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

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

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

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

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

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

During the nine months ended September 30, 2022, net cash used in financing activities primarily consisted of:

• dividends on common stock of $95 million,

• net repayments of long-term borrowings of $48 million, which primarily included net payments of $25 million on our First Lien Revolving Credit Facility and $21 million of quarterly principal payments on our First Lien Term Loan due 2026,

• payments related to finance leases of $34 million, and

• payments related to interest rate swap contracts that included an other-than-insignificant financing element at inception of $27 million, partially offset by

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The accompanying condensed consolidated financial statements are prepared in accordance with GAAP, which requires us to select accounting policies and make estimates that affect amounts reported in the condensed consolidated financial statements and the accompanying notes.

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

• net proceeds of $131 million under the Receivables Facility

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

• dividends on common stock of $87 million,

• net repayments of long-term borrowings of $41 million, which included $28 million in call premiums and $14 million of quarterly principal payments on our First Lien Term Loan due 2026.

• payments related to interest rate swap contracts that included an other-than-insignificant financing element at inception of $42 million, as well as

• payments related to finance leases of $23 million, partially offset by

• net proceeds under the Receivables Facility of $90 million.

CRITICAL ACCOUNTING ESTIMATES

We disclosed our critical accounting estimates in our 2021 Annual Report, which include estimates prepared in accordance with GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations.

Critical accounting estimates are based on, among other things, estimates, assumptions, and judgments made by management that include inherent risks and uncertainties.

Our estimates are based on relevant information available at the end of each period.

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

We disclosed our accounting policies and critical accounting estimates in our 2021 Annual Report, which are based on, among other things, estimates and judgments made by management that include inherent risks and uncertainties.

Refer to Note 1 “Description of Business and Summary of Significant Accounting Policies” to the condensed consolidated financial statements for further information about recent accounting pronouncements and adoptions.

There were no material changes in our critical accounting estimates to that disclosed in our 2021 Annual Report, except as discussed below:

Goodwill Impairment

We perform our annual goodwill impairment test on October 1 of each year or more often if events occur or circumstances change which indicate it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount.

Under a quantitative approach, we estimate the fair value of a reporting unit and compare it to the reporting unit’s carrying amount.

If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.

As disclosed in our 2021 Annual Report, we acquired ADT Solar in December 2021 and assigned the goodwill to our newly created Solar reporting unit at the time of acquisition.

During the third quarter of 2022, as a result of ADT Solar’s recent underperformance of 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, we performed an interim impairment quantitative assessment on our Solar reporting unit as of September 30, 2022.

We 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.

In developing these assumptions, we relied on various factors including operating results, business plans, economic projections, anticipated future cash flows, and other market data.

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 our assumptions in timing or degree, volatility in equity and debt markets resulting in higher discount rates, and unexpected regulatory changes.

There are inherent uncertainties related to these judgments and factors that may ultimately impact the estimated fair value determinations.

Based on the results of our interim impairment analysis, we recorded a non-cash impairment charge of $149 million in the Condensed Consolidated Statements of Operations during the third quarter of 2022.

Following the impairment loss, the remaining balance of goodwill attributable to our Solar reporting unit is approximately $561 million.

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.

If our 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.

Refer to Note 6 “Goodwill and Other Intangible Assets” to the condensed consolidated financial statements for further discussion.

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS

1 unchanged sentence

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

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

anticipated financial performance;

management’s plans and objectives for future operations;

the successful development, commercialization, and timing of new or joint products;

expected timing of product commercialization with State Farm or any changes thereto;

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

7 unchanged sentences

the successful commercialization of our joint venture with Ford;

the successful conversion of

customers who continue to utilize 3G services;

the successful conversion of customers who continue to utilize 3G services;

the current and future market size for existing, new, or joint products;

any stated or implied outcomes with regards to the foregoing;

and other matters are forward-looking.

2 unchanged sentences

For ADT, particular uncertainties that could cause our actual results to be materially different than those expressed in our forward-looking statements include, without limitation:

• our ability to effectively implement our strategic partnership with, commercialize products with, or utilize any of the amounts invested in us by State Farm or provided by State Farm for R&D or other purposes;

• our ability to keep pace with rapid technological changes, including the development of our next-generation platform, and industry changes;

17 unchanged sentences

Therefore, caution should be taken not to place undue reliance on any such forward-looking statements.

Much of the information in this report that looks toward future performance of the Company is based on various factors and important assumptions about future events that may or may not actually occur.

Much of the information in this report that looks toward future performance is based on various factors and important assumptions about future events that may or may not actually occur.

As a result, our operations and financial results in the future could differ materially and substantially from those we have discussed in the forward-looking statements included in this Quarterly Report on Form 10-Q.

1 unchanged sentence

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis