What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-08-08 compared with 2023-05-02 · 228 added, 154 removed, 613 unchanged (38% of the section changed)

3 unchanged sentences

(in thousands, except share and per share data)

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Current assets:

29 unchanged sentences

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

zero issued and outstanding as of March 31, 2023 and December 31, 2022

zero issued and outstanding as of June 30, 2023 and December 31, 2022

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

issued and outstanding shares of 866,916,570 and 862,098,041 as of March 31, 2023 and December 31, 2022, respectively

issued and outstanding shares of 866,408,740 and 862,098,041 as of June 30, 2023 and December 31, 2022, respectively

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

issued and outstanding shares of 54,744,525 as of March 31, 2023 and December 31, 2022

issued and outstanding shares of 54,744,525 as of June 30, 2023 and December 31, 2022

Additional paid-in capital 7,390,269 7,380,759

7 unchanged sentences

(in thousands, except per share data)

Three Months Ended March 31,

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

2023 2022 2023 2022

Monitoring and related services $ 1,187,063 $ 1,145,792 $ 2,360,381 $ 2,267,088

35 unchanged sentences

(in thousands)

Three Months Ended March 31,

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

2023 2022 2023 2022

Net income (loss) $ 92,211 $ 91,517 $ ( 26,626 ) $ 143,162

8 unchanged sentences

(in thousands)

Three Months Ended March 31, 2023

Three Months Ended June 30, 2023

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

Transactions related to employee share-based compensation plans and other ( 508 ) — ( 4 ) — ( 2,104 ) ( 445 ) ( 2,553 )

Ending balance 866,409 54,745 $ 8,664 $ 547 $ 7,390,269 $ ( 4,041,963 ) $ ( 39,505 ) $ 3,318,012

Three Months Ended June 30, 2022

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

Net income (loss) — — — — — 91,517 — 91,517

Other comprehensive income (loss), net of tax — — — — — — 6,556 6,556

Issuance of common stock, net of expenses 4,704 — 47 — 15,321 — — 15,368

Dividends — — — — — ( 31,944 ) — ( 31,944 )

Share-based compensation expense — — — — 16,932 — — 16,932

Transactions related to employee share-based compensation plans and other 614 — 6 — 1,175 ( 478 ) — 703

Ending balance 856,642 54,745 $ 8,566 $ 547 $ 7,295,665 $ ( 3,874,045 ) $ ( 51,334 ) $ 3,379,399

See Notes to Condensed Consolidated Financial Statements

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

Six Months Ended June 30, 2023

Beginning balance 862,098 54,745 $ 8,621 $ 547 $ 7,380,759 $ ( 3,949,579 ) $ ( 47,200 ) $ 3,393,148

Net income (loss) — — — — — ( 26,626 ) — ( 26,626 )

Other comprehensive income (loss), net of tax — — — — — — 7,695 7,695

Dividends — — — — — ( 64,430 ) — ( 64,430 )

Share-based compensation expense — — — — 27,488 — — 27,488

Transactions related to employee share-based compensation plans and other

4,311 — 43 — ( 17,978 ) ( 1,328 ) ( 19,263 )

Ending balance 866,409 54,745 $ 8,664 $ 547 $ 7,390,269 $ ( 4,041,963 ) $ ( 39,505 ) $ 3,318,012

Three Months Ended March 31, 2022

Six Months Ended June 30, 2022

2 unchanged sentences

Other comprehensive income (loss), net of tax — — — — — — 17,639 17,639

Issuance of common stock, net of expenses 4,704 — 47 — 15,321 — — 15,368

Dividends — — — — — ( 63,702 ) — ( 63,702 )

7 unchanged sentences

(in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Cash flows from operating activities:

19 unchanged sentences

Purchases of property and equipment ( 89,347 ) ( 87,621 )

Acquisition of businesses, net of cash acquired — ( 13,154 )

Proceeds from sale of business, net of cash sold — 26,681

Other investing, net 7,126 ( 13,189 )

19 unchanged sentences

Business and Organization

ADT Inc., together with its wholly-owned subsidiaries (collectively, the “Company”), provides security, interactive, and smart home solutions, in the United States (“U.S.”), to consumer, small business, and commercial customers, as well as residential solar and energy storage solutions.

ADT Inc., together with its wholly-owned subsidiaries (collectively, “ADT” or the “Company”), provides security, interactive, and smart home solutions to consumer, small business, and commercial customers, as well as residential solar and energy storage solutions, in the United States (“U.S.”).

The Company primarily conducts business under the ADT brand name.

10 unchanged sentences

and its wholly-owned subsidiaries.

The results of companies acquired are included from the effective date of acquisition;

The results of companies acquired are included from the effective dates of acquisition;

and all intercompany transactions have been eliminated.

2 unchanged sentences

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

As disclosed in the Company’s Current Report on Form 8-K filed with the U.S.

Securities and Exchange Commission (the “SEC”) on July 10, 2023, in connection with the preparation of the Company’s second quarter 2023 condensed consolidated financial statements, the Company identified errors in the non-cash goodwill impairment losses associated with its Solar reporting unit and related tax impacts recognized during the third quarter of 2022 and the first quarter of 2023 as a result of the Company not applying the simultaneous equation method prescribed by Accounting Standards Update 2017-04, Intangibles – Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment (“ASU 2017-04”).

As a result, on July 27, 2023, the Company filed an Amendment No.

1 to its Annual Report on Form 10-K for the year ended December 31, 2022 (the “Amended 2022 Annual Report”), which was originally filed with the SEC on February 28, 2023 (the “Original 2022 Annual Report”).

The Company also restated its Quarterly Reports on Form 10-Q for the quarters ended September 30, 2022, and March 31, 2023, by filing amendments to the respective original Quarterly Reports on Form 10-Q with the SEC on July 27, 2023.

The Condensed Consolidated Balance Sheet as of December 31, 2022 included herein was derived from the audited consolidated financial statements as of that date.

Certain information and footnote disclosures required in the annual consolidated financial statements have been omitted as appropriate.

For a more comprehensive understanding of the Company and its interim results, these condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Annual Report”), which was filed with the U.S.

Securities and Exchange Commission (the “SEC”) on February 28, 2023.

Use of Estimates

2 unchanged sentences

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

The Company considered recent impacts from macroeconomic conditions such as inflationary pressures, rising interest rates, the uncertainty and volatility in the financial markets, and supply chain disruptions, as well as any 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.

The Company considered recent impacts from macroeconomic conditions such as inflationary pressures, rising interest rates, the uncertainty and volatility in the financial markets, and supply chain disruptions, as well as any on-going impacts from 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.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

As of March 31, 2023, the impact to the Company, as well as its response plan, has not materially changed from that described in the 2022 Annual Report.

As of June 30, 2023, the impact to the Company, as well as its response plan, has not materially changed from that described in the Amended 2022 Annual Report.

The Company has three operating and reportable segments organized based on customer type:

2 unchanged sentences

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

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Commercial Divestiture

On August 7, 2023, ADT, Iris Buyer LLC, a Delaware limited liability company and affiliate of GTCR LLC (“GTCR”), and, solely for certain purposes set forth in the Commercial Purchase Agreement (as defined below), Fire & Security Holdings, LLC (“F&S Holdings”), a Delaware limited liability company and an indirect, wholly owned subsidiary of ADT, entered into an Equity Purchase Agreement (the “Commercial Purchase Agreement”).

Pursuant to the terms and subject to the conditions set forth in the Commercial Purchase Agreement, GTCR has agreed to acquire all of the issued and outstanding equity interests of F&S Holdings (the “Commercial Transaction” or “Divestiture”), which directly or indirectly holds all of the issued and outstanding equity interests in the subsidiaries of ADT that operate ADT’s Commercial business (the “Commercial Business”).

The purchase price to be paid to ADT in connection with the Commercial Transaction is $ 1,613 million in cash, subject to certain customary adjustments as set forth in the Commercial Purchase Agreement.

The Company evaluated and concluded that it did not meet the held for sale criteria for the disposal group as of June 30, 2023.

Subsequent to June 30, 2023, in connection with the Commercial Transaction, the Company evaluated and concluded that it met all of the held for sale criteria for the disposal group and will classify and report results of the Commercial Business as discontinued operations for the current and historical periods in the Company’s consolidated financial statements beginning in its Quarterly Report on Form 10-Q for the period ended September 30, 2023.

Accounting Pronouncements

14 unchanged sentences

The Company is currently evaluating this guidance.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Significant Accounting Policies

Unless otherwise noted, the Company’s accounting policies discussed below, or included within the respective footnotes herein, do not materially differ from those disclosed in the 2022 Annual Report.

Cash and Cash Equivalents and Restricted Cash and Restricted Cash Equivalents

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:

(in thousands) March 31, 2023 December 31, 2022

(in thousands) June 30, 2023 December 31, 2022

Cash and cash equivalents $ 146,435 $ 257,223

3 unchanged sentences

________________

(1) Primarily includes amounts received during 2022 from State Farm Fire & Casualty Company (“State Farm”), inclusive of accrued interest, in connection with the State Farm Development Agreement (as defined and discussed in Note 15 “Related Party Transactions”).

(1) Primarily includes amounts received from State Farm Fire & Casualty Company (“State Farm”), inclusive of accrued interest, in connection with the State Farm Development Agreement (as defined and discussed in Note 15 “Related Party Transactions”).

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

1 unchanged sentence

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

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

(in thousands) March 31, 2023 December 31, 2022

(in thousands) June 30, 2023 December 31, 2022

Gross carrying amount $ 6,342,824 $ 6,205,762

1 unchanged sentence

Subscriber system assets, net $ 3,102,531 $ 3,061,303

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:

Three Months Ended March 31,

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

(in thousands) 2023 2022 2023 2022

3 unchanged sentences

Accrued Expenses and Other Current Liabilities

(in thousands) March 31, 2023 December 31, 2022

(in thousands) June 30, 2023 December 31, 2022

Accrued interest $ 133,093 $ 156,495

4 unchanged sentences

Accrued expenses and other current liabilities $ 721,880 $ 899,780

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Fair Value of Financial Instruments

3 unchanged sentences

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

Investments in money market mutual funds were $ 122 million and $ 145 million as of March 31, 2023 and December 31, 2022, respectively.

As of June 30, 2023 and December 31, 2022, investments in money market mutual funds were $ 170 million and $ 145 million, respectively.

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.

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.

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

(in thousands) Carrying

4 unchanged sentences

(1) Excludes finance leases.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Derivative Financial Instruments - Derivative financial instruments are reported at fair value as either assets or liabilities that 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.

2 unchanged sentences

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.

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

(in thousands) Carrying

1 unchanged sentence

Retail installment contract receivables, net $ 626,212 $ 437,827 $ 531,516 $ 385,114

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

REVENUE AND RECEIVABLES

Disaggregated Revenue

Three Months Ended March 31,

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

(in thousands) 2023 2022 2023 2022

11 unchanged sentences

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 security installation, product, and other revenue.

Three Months Ended March 31,

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

( in thousands )

2023 2022 2023 2022

Amortization of deferred subscriber acquisition revenue $ 75,910 $ 58,461 $ 147,932 $ 111,884

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

2 unchanged sentences

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

Fees incurred under these agreements are recorded as a reduction of solar installation, product, and other revenue and were approximately $ 19 million and $ 38 million during the three months ended March 31, 2023 and 2022, respectively.

During the three months ended March 31, 2023 and 2022, revenue from the sale of solar equipment was approximately $ 75 million and $ 126 million, respectively, and cost of revenue was approximately $ 52 million and $ 82 million, respectively.

Fees incurred under these agreements are recorded as a reduction of solar installation, product, and other revenue.

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

( in thousands )

2023 2022 2023 2022

Third-party lender fees $ 9,057 $ 39,862 $ 28,470 $ 78,072

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Revenue and cost of revenue from the sale of solar equipment are reflected in the statements of operations as follows:

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

( in thousands )

2023 2022 2023 2022

Solar installation, product, and other revenue $ 33,421 $ 120,505 $ 108,511 $ 246,373

Solar installation, product, and other cost of revenue $ 29,145 $ 78,327 $ 80,843 $ 160,142

Allowance for Credit Losses

2 unchanged sentences

The allowance for credit losses is not material for the individual pools of customers.

Three Months Ended March 31,

Six Months Ended June 30,

(in thousands) 2023 2022

12 unchanged sentences

The balance of unbilled retail installment contract receivables comprises:

(in thousands) March 31, 2023 December 31, 2022

(in thousands) June 30, 2023 December 31, 2022

Retail installment contract receivables, gross $ 627,369 $ 532,406

6 unchanged sentences

The allowance for credit losses relates to retail installment contract receivables from outright sales transactions.

As of March 31, 2023, the current and delinquent billed retail installment contract receivables were not material.

As of June 30, 2023, the current and delinquent billed retail installment contract receivables were not material.

As of June 30, 2023 and December 31, 2022, retail installment contract receivables, net, used as collateral for borrowings under the Receivables Facility were $ 563 million and $ 506 million, respectively.

Refer to Note 7 “Debt” for further discussion regarding the Receivables Facility.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of March 31, 2023 and December 31, 2022, retail installment contract receivables, net, used as collateral for borrowings under the Receivables Facility were $ 538 million and $ 506 million, respectively.

Refer to Note 7 “Debt” for further discussion regarding the Receivables Facility.

Contract Assets

2 unchanged sentences

The financing component of contract assets is not significant.

During the three months ended March 31, 2023 and 2022, contract assets recognized were not material.

During the six months ended June 30, 2023 and 2022, contract assets recognized were not material.

The balance of contract assets for residential transactions comprises:

(in thousands) March 31, 2023 December 31, 2022

(in thousands) June 30, 2023 December 31, 2022

Contract assets, gross $ 42,392 $ 54,305

9 unchanged sentences

The Company’s segments are based on the manner in which the Company’s Chief Executive Officer, who is the chief operating decision maker (the “CODM”) evaluates performance and makes decisions about how to allocate resources.

There have been no changes to the Company’s segments from that disclosed in the 2022 Annual Report.

There have been no changes to the Company’s segments from that disclosed in the Amended 2022 Annual Report.

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

• CSB - Customers in the CSB segment are comprised of owners and renters of residential properties, small business operators, and other individual consumers.

The CSB segment primarily includes the sale, installation, servicing, and monitoring of integrated security and automation systems, as well as other related offerings.

The CSB segment includes the sale, installation, servicing, and monitoring of integrated security and automation systems and other related offerings.

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

The Commercial segment primarily includes the sale, installation, servicing, and monitoring of integrated security and automation systems, fire detection and suppression systems, and other related offerings.

The Commercial segment includes the sale, installation, servicing, and monitoring of integrated security and automation systems, fire detection and suppression systems, and other related offerings.

• Solar - Customers in the Solar segment are comprised of residential homeowners.

The Solar segment primarily includes the sale and installation of solar systems, energy storage solutions, roofing services, and other related solutions and services.

The Solar segment includes the sale and installation of solar systems, energy storage solutions, roofing services, and other related offerings.

Each of the Company’s segments includes revenue and operating costs related to the activities noted above, other operating costs associated with support functions related to these operations, and certain dedicated corporate costs and other income and expense items.

7 unchanged sentences

(vii) losses on extinguishment of debt;

(viii) radio conversion

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(viii) radio conversion costs, net;

(ix) adjustments related to acquisitions, such as contingent consideration and purchase accounting adjustments, or dispositions;

3 unchanged sentences

therefore, such information is not presented.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Reconciliations

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

Three Months Ended March 31,

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

(in thousands) 2023 2022 2023 2022

4 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:

Three Months Ended March 31,

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

(in thousands) 2023 2022 2023 2022

12 unchanged sentences

Merger, restructuring, integration, and other (1)

18,090 ( 3,845 ) 35,737 ( 3,317 )

Goodwill impairment (2)

181,179 — 422,809 —

Acquisition-related adjustments (3)

1,028 1,328 2,658 37,623

Equity in net earnings (losses) of equity method investee ( 1,738 ) ( 948 ) ( 4,415 ) ( 948 )

Other, net (4)

( 310 ) ( 8,263 ) 75 2,776

Income (loss) before income taxes and equity in net earnings (losses) of equity method investee $ 38,811 $ 130,389 $ ( 140,213 ) $ 201,558

________________

(1) During 2023, includes restructuring costs primarily related to certain facility exits, as well as integration and third-party costs related to the strategic optimization of the Solar business operations following the ADT Solar acquisition.

(2) Represents an impairment charge associated with the Company’s Solar reporting unit.

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

(1) During 2023, includes integration and third-party costs related to the strategic optimization of the Solar business operations following the ADT Solar acquisition, restructuring costs, as well as acquisition costs.

(2) During 2023, represents impairment charges associated with the Company’s Solar reporting unit.

Refer to Note 1 “Description of Business and Summary of Significant Accounting Policies” and Note 6 “Goodwill and Other Intangible Assets.”

(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 includes net radio conversion costs.

(4) During 2022, primarily includes a gain on sale of a business of $ 10 million and net radio conversion costs.

ACQUISITIONS AND DISPOSITIONS

During the six months ended June 30, 2022, total consideration related to 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.

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 SG&A.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

ACQUISITIONS AND DISPOSITIONS

There were no acquisitions or dispositions during the periods presented.

EQUITY METHOD INVESTMENTS

5 unchanged sentences

The impact to the Company’s condensed consolidated financial statements as a result of the Canopy Investment or the commercial agreements was not material during the periods presented.

As of March 31, 2023 and December 31, 2022, the Canopy Investment’s carrying amount was approximately $ 10 million and $ 7 million, respectively, and is presented in other assets.

As of June 30, 2023 and December 31, 2022, the Canopy Investment’s carrying amount was approximately $ 8 million and $ 7 million, respectively, and is presented in other assets.

The balance primarily reflects the initial contribution, plus an additional investment of approximately $ 5 million during the first quarter of 2023, as well as the Company’s proportionate share of Canopy’s cumulative net earnings or losses.

5 unchanged sentences

Impairment — — ( 422,809 ) ( 422,809 )

Balance as of March 31, 2023 $ 4,919,860 $ 336,589 $ 370,065 $ 5,626,514

Balance as of June 30, 2023 $ 4,919,373 $ 336,589 $ 88,367 $ 5,344,329

________________

(1) Includes the impact of measurement period adjustments.

As of March 31, 2023 and December 31, 2022, the Company had accumulated goodwill impairment losses of $ 342 million and $ 149 million, respectively, associated with the Company’s Solar reporting unit.

(1) Includes the impact of measurement period adjustments which were not material during the six months ended June 30, 2023.

As of June 30, 2023 and December 31, 2022, the Company had accumulated goodwill impairment losses of $ 624 million and $ 201 million, respectively, associated with the Company’s Solar reporting unit.

Solar Goodwill Impairment

During the first quarter of 2023, the Company concluded that there was a triggering event related to its Solar reporting unit as a result of current macroeconomic conditions, including the impact of rising interest rates and financial market conditions on the Company’s third party lenders and customer demand, as well as ADT Solar’s underperformance of operating results in the first quarter of 2023 relative to expectations.

As a result, the Company performed an interim impairment quantitative assessment on the Solar reporting unit as of March 31, 2023.

Based on the results of the Company’s interim goodwill impairment quantitative analysis, the Company recorded a goodwill impairment charge of $ 193 million during the first quarter of 2023.

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.

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.

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

As previously disclosed, the Company performed an interim impairment quantitative assessment on the Solar reporting unit as a result of a triggering event as of March 31, 2023 and recorded a goodwill impairment charge of $ 242 million during the first quarter of 2023.

Also as previously disclosed, the Solar reporting unit was considered at risk of future impairment following the impairment in the first quarter 2023.

During the second quarter of 2023, the Company concluded there was an additional triggering event related to its Solar reporting unit as a result of the then-current macroeconomic conditions, including the impact of rising interest rates, as well as ADT Solar’s continued underperformance of operating results in the second quarter of 2023 relative to expectations.

As a result, the Company performed an interim impairment quantitative assessment on the Solar reporting unit as of June 30, 2023.

Based on the results of the Company’s interim goodwill impairment quantitative analysis, the Company recorded a goodwill impairment charge of $ 181 million during the second quarter of 2023.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

unexpected regulatory changes.

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.

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

3 unchanged sentences

Other Intangible Assets

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

(in thousands) Gross Carrying

17 unchanged sentences

Amortization ( 290,583 )

Balance as of March 31, 2023 $ 2,709,654

Balance as of June 30, 2023 $ 2,716,389

________________

1 unchanged sentence

Payments for customer contract additions under the Company’s authorized dealer program and from other third parties are reflected as dealer generated customer accounts and bulk account purchases on the Condensed Consolidated Statements of Cash Flows.

Additionally, the Company retired approximately $ 1.7 billion of customer relationship intangible assets that were acquired as part of the 2016 acquisition of The ADT Security Corporation (formerly named The ADT Corporation) (“The ADT Corporation”) (the “ADT Acquisition”) that became fully amortized during the first quarter of 2023.

Additionally, during the first quarter of 2023, the Company retired approximately $ 1.7 billion of customer relationship intangible assets that became fully amortized.

These assets were originally acquired as part of the 2016 acquisition of The ADT Security Corporation (formerly named The ADT Corporation) (“The ADT Corporation”) (the “ADT Acquisition”).

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Definite-Lived Intangible Asset Amortization Expense

Three Months Ended March 31,

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

(in thousands) 2023 2022 2023 2022

Definite-lived intangible asset amortization expense $ 151,795 $ 210,738 $ 334,944 $ 502,685

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company’s debt is comprised of the following (in thousands) :

Description Issued Maturity Interest Rate (1)

Interest Payable March 31, 2023 December 31, 2022

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

LIBOR + 2.75 %

Interest Payable June 30, 2023 December 31, 2022

First Lien Term Loan due 2026 9/23/2019 9/23/2026 Term SOFR + 2.75 %

Quarterly $ 2,716,375 $ 2,730,269

9 unchanged sentences

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

Receivables Facility 3/5/2020 2/20/2028 COF + 0.85 %

Monthly 374,108 354,741

Receivables Facility 3/5/2020 5/20/2028 Various Monthly 402,553 354,741

Other debt (2)

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_________________

(1) Interest rate as of March 31, 2023 .

LIBOR refers to the London Interbank Offered Rate.

SOFR refers to the Secured Overnight Financing Rate.

COF refers to Cost of Funds.

(1) Interest rate as of June 30, 2023 .

During June 2023, the Secured Overnight Financing Rate (“SOFR”) replaced the forward London Interbank Offered Rate (“LIBOR”) as the applicable benchmark rate for all remaining existing and future issuances of the Company’s debt instruments with a variable rate component.

Interest on the Receivables Facility is primarily based on SOFR + 0.95 % and Cost of Funds (“COF”) + 0.85 %.

(2) Other debt primarily consists of vehicle loans at various interest rates and maturities.

(3) Refer to Note 14 “Leases” for additional information regarding the Company’s finance leases.

Significant changes in the Company’s debt during the three months ended March 31, 2023 were as follows:

Significant changes in the Company’s debt during the six months ended June 30, 2023 were as follows:

First Lien Credit Agreement

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

During the three months ended March 31, 2023, there were no borrowings under the First Lien Revolving Credit Facility;

and as of March 31, 2023, the Company had $ 575 million in available borrowing capacity.

During the three months ended March 31, 2022, the Company borrowed $ 280 million and repaid $ 135 million under its First Lien Revolving Credit Facility.

During the six months ended June 30, 2023, there were no borrowings under the First Lien Revolving Credit Facility;

and as of June 30, 2023, the Company had $ 575 million in available borrowing capacity.

During the six months ended June 30, 2022, the Company borrowed $ 380 million and repaid $ 325 million under its First Lien Revolving Credit Facility.

AND SUBSIDIARIES

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Term Loan A Facility

On March 14, 2023, Prime Security Services Holdings, LLC (“Holdings”), a Delaware limited liability company and a wholly owned direct subsidiary of the Company, Prime Security Services Borrower, LLC (“Prime Borrower”), a Delaware limited liability company and a wholly owned direct subsidiary of Holdings, and The ADT Corporation, a Delaware corporation and a wholly owned direct subsidiary of Prime Borrower (together with Prime Borrower, the “Term Loan A Borrowers”), entered into a term loan credit agreement (the “Term Loan A Credit Agreement”) with Barclays Bank PLC, as administrative agent, and the lenders party thereto, pursuant to which such lenders have provided the Term Loan A Borrowers with an aggregate principal amount of $ 600 million of term loans (the “Closing Date Term Loan A Loans”) under a senior secured term loan A facility (the “Term Loan A Facility”).

Also on March 14, 2023, Holdings, the Term Loan A Borrowers, the subsidiary loan parties thereto, Barclays Bank PLC, and the lender parties thereto amended the Term Loan A Credit Agreement, pursuant to which the lenders have agreed, at the option of the Term Loan A Borrowers and subject to the satisfaction or waiver of customary conditions, to provide the Term Loan A Borrowers with an aggregate principal amount of $ 50 million of incremental term loans (the “Incremental Term Loan A”) under the Term Loan A Facility on or before the scheduled maturity date of the Company’s 4.125 % senior notes due June 15, 2023 (the “ADT Notes due 2023”).

The Incremental Term Loan A will have the same terms as, and constitute one class with, the Closing Date Term Loan A Loans.

Amounts borrowed under the Incremental Term Loan A are expected to be borrowed on or around the stated maturity date of the ADT Notes due 2023 and the proceeds from the Incremental Term Loan A will be used to complete the redemption of at least $ 50 million of the ADT Notes due 2023 at maturity.

On March 14, 2023, Prime Security Services Holdings, LLC (“Holdings”), a Delaware limited liability company and a wholly owned direct subsidiary of the Company, Prime Security Services Borrower, LLC (“Prime Borrower”), a Delaware limited liability company and a wholly owned direct subsidiary of Holdings, and The ADT Corporation, a Delaware corporation and a wholly owned direct subsidiary of Prime Borrower (together with Prime Borrower, the “Term Loan A Borrowers”), entered into a term loan credit agreement (the “Term Loan A Credit Agreement”) with Barclays Bank PLC, as administrative agent, and the lenders party thereto, pursuant to which such lenders provided the Term Loan A Borrowers with an aggregate principal amount of $ 600 million of term loans (the “Closing Date Term Loan A Loans”) under a senior secured term loan A facility (the “Term Loan A Facility”).

Also on March 14, 2023, Holdings, the Term Loan A Borrowers, the subsidiary loan parties thereto, Barclays Bank PLC, and the lender party thereto entered into an amendment to the Term Loan A Credit Agreement, pursuant to which the lender party thereto agreed, at the option of the Term Loan A Borrowers and subject to the satisfaction or waiver of customary conditions, to provide the Term Loan A Borrowers with an aggregate principal amount of $ 50 million of incremental term loans (the “Incremental Term Loan A Loans”) under the Term Loan A Facility on or before the scheduled maturity date of the Company’s 4.125 % senior notes due June 15, 2023 (the “ADT Notes due 2023”).

On June 15, 2023, the Company borrowed the Incremental Term Loan A Loans and used the proceeds to complete the redemption of approximately $ 50 million of the ADT Notes due 2023.

The Incremental Term Loan A Loans have the same terms as, and constitutes one class with, the Closing Date Term Loan A Loans.

The Term Loan A Facility has a maturity date of March 14, 2028, 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.

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Fees associated with the Term Loan A Facility were not material during the periods presented.

ADT Notes due 2023 Partial Redemption

ADT Notes due 2023 Redemption

On March 15, 2023, the Company used the proceeds from the Closing Date Term Loan A Loans to redeem approximately $ 600 million of the ADT Notes due 2023 (the “2023 Notes Partial Redemption”) for a total redemption price of approximately $ 600 million, excluding any accrued and unpaid interest.

Loss on extinguishment of debt was not material.

The Company intends to redeem the remaining balance of the ADT Notes due 2023 in June 2023 prior to maturity using proceeds from the Incremental Term Loan A and cash on hand.

On June 15, 2023, the Company redeemed the remaining outstanding balance of approximately $ 100 million of the ADT Notes due 2023 using $ 50 million of proceeds from the Incremental Term Loan A Loans and cash on hand.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

ADT Notes due 2024 Partial Redemption

On March 17, 2023, Prime Borrower and Prime Finance Inc., a Delaware corporation and an indirect wholly-owned subsidiary of the Company (together with Prime Borrower, the “Issuers”), delivered a Notice of Partial Redemption (the “ADT 2024 Notes Partial Redemption Notice”) to holders of the outstanding 5.250 % First-Priority Senior Secured Notes due 2024 (the “ADT Notes due 2024”).

The ADT 2024 Notes Partial Redemption Notice was issued pursuant to the terms of the Indenture, dated as of April 4, 2019, as amended and supplemented through the date hereof (the “2024 Notes Indenture”), among the Issuers, the guarantors party thereto from time to time and Wells Fargo Bank, National Association, as trustee.

The ADT 2024 Notes Partial Redemption Notice provides for the partial redemption by the Issuers of $ 150 million principal amount of the outstanding ADT Notes due 2024 on May 2, 2023 (the “2024 Notes Redemption Date”) at a redemption price calculated pursuant to the ADT Notes due 2024 Indenture, plus the accrued and unpaid interest.

Subsequent Event - On May 2, 2023, the Company redeemed $ 150 million principal amount of the outstanding ADT Notes due 2024 for a redemption price of $ 150 million, excluding accrued and unpaid interest, using cash on hand.

First Lien Notes due 2024 Partial Redemption

On March 17, 2023, Prime Borrower and Prime Finance Inc., a Delaware corporation and an indirect wholly-owned subsidiary of the Company (together with Prime Borrower, the “Issuers”), delivered a Notice of Partial Redemption (the “First Lien Notes due 2024 Partial Redemption Notice”) to holders of the outstanding 5.250 % First-Priority Senior Secured Notes due 2024 (the “First Lien Notes due 2024”).

The First Lien Notes due 2024 Partial Redemption Notice was issued pursuant to the terms of the Indenture, dated as of April 4, 2019, as amended and supplemented through the date hereof, among the Issuers, the guarantors party thereto from time to time and Wells Fargo Bank, National Association, as trustee.

On May 2, 2023, in accordance with the First Lien Notes due 2024 Partial Redemption Notice, the Company redeemed $ 150 million principal amount of the $ 750 million outstanding First Lien Notes due 2024 for a redemption price of $ 150 million, excluding accrued and unpaid interest, using cash on hand.

Receivables Facility

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In March 2023, the Company amended the agreement governing the Receivables Facility, pursuant to which, among other things, the borrowing capacity was increased from $ 400 million to $ 500 million and the uncommitted revolving period was extended from May 2023 to March 2024.

As of March 31, 2023, the Company had an uncommitted available borrowing capacity under the Receivables Facility of approximately $ 126 million.

As of June 30, 2023, the Company had an uncommitted available borrowing capacity under the Receivables Facility of approximately $ 97 million.

The Receivables Facility did not have a material impact to the Condensed Consolidated Statements of Operations during the periods presented.

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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

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.

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.

In addition, any modification, such as a repricing, or any new debt issuances with a variable rate component, will utilize SOFR.

DERIVATIVE FINANCIAL INSTRUMENTS

The Company's derivative financial instruments primarily consist of LIBOR-based and SOFR-based interest rate swap contracts, which were entered into with the objective of managing exposure to variability in interest rates on the Company's debt.

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

Solar Receivables Facility

On August 2, 2023, Compass Solar Group, LLC (“Compass”) and ADT Solar Finance LLC (“ADT Solar Finance”), each an indirect wholly-owned subsidiary of ADT Inc.

entered into a Receivables Financing Agreement with Mizuho Bank, Ltd.

(the “Solar Receivables Financing Agreement”) to finance receivables generated by the installation of residential solar systems.

The Solar Receivables Financing Agreement, among other things, provides for an uncommitted revolving loan facility in the aggregate principal amount of up to $ 300 million, which loans are secured by substantially all the assets of ADT Solar Finance (the “Solar Receivables Facility”).

The Solar Receivables Financing Agreement has an initial revolving period of one year (which may be extended by agreement of the parties) followed by an amortization period of 300 months to maturity where all collections on the receivables during such period will be applied to prepay the loan until reduced to zero, which will occur only if the Solar Receivables Financing Agreement is not mutually extended on a revolving basis.

The interest rate under the Solar Receivables Financing Agreement is the sum of (x) term SOFR (plus a credit adjustment spread of 0.1%) plus (y) 1.0 % (increased to 3.5 % after the termination date) or, with respect to loans funded by a Conduit Lender (as defined in the Solar Receivables Financing Agreement), the sum of (x) the applicable rate set forth in the Receivables Financing Agreement plus (y) 1.0 % (increased to 3.5 % after the termination date).

In connection with such Solar Receivables Financing Agreement, certain other agreements relating to the transaction were entered into, including ADT Solar Finance’s limited liability company agreement, a Receivables Sale Agreement between Compass and ADT Solar Finance, pursuant to which Compass sells such receivables from time to time to ADT Solar Finance, a Performance Support Agreement entered into by ADT Inc., pursuant to which ADT Inc.

guaranteed certain obligations under the Solar Receivables Financing Agreement and related transaction documents and certain account control agreements and security agreements, were also entered into.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DERIVATIVE FINANCIAL INSTRUMENTS

The Company's derivative financial instruments primarily consist of interest rate swap contracts, which were entered into with the objective of managing exposure to variability in interest rates on the Company's debt.

As of July 2023, SOFR is the applicable benchmark for all of the Company's interest rate swap contracts.

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

For interest rate swap contracts that are:

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Interest Rate Swaps :

As of March 31, 2023, the Company’s interest rate swaps consisted of the following (in thousands) :

During the six months ended June 30, 2023, the Company entered into floating-to-fixed interest rate swaps with an aggregate notional amount of $ 300 million to partially hedge the Term Loan A Facility.

As of June 30, 2023, the Company’s interest rate swaps consisted of the following (in thousands) :

Execution Maturity Designation Notional Amount

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March 2023 March 2028 Not designated $ 100,000

During the three months ended March 31, 2023, the Company entered into floating-to-fixed interest rate swaps with an aggregate notional amount of $ 100 million to partially hedge the Term Loan A Facility.

Subsequent Event - During April 2023, the Company entered into additional floating-to-fixed interest rate swaps with an aggregate notional amount of $ 200 million to partially hedge the Term Loan A Facility.

April 2023 March 2028 Not designated $ 200,000

Classification and Fair Value of Interest Rate Swaps:

(in thousands) March 31, 2023 December 31, 2022

(in thousands) June 30, 2023 December 31, 2022

Prepaid expenses and other current assets $ 90,113 $ 78,110

Other assets 115,499 105,405

Other liabilities ( 158 ) —

Fair value of interest rate swaps - net asset (liability) $ 205,612 $ 183,515

Unrealized Gain (Loss) on Interest Rate Swaps:

Three Months Ended March 31,

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

(in thousands) 2023 2022 2023 2022

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Cash Flow Hedges Reclassifications out of AOCI:

Three Months Ended March 31,

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

( in thousands )

2023 2022 2023 2022

Interest expense, net $ 4,729 $ 8,647 $ 10,178 $ 23,267

Income tax (benefit) expense $ ( 1,143 ) $ ( 2,086 ) $ ( 2,457 ) $ ( 5,614 )

As of March 31, 2023 and December 31, 2022, AOCI, net of tax, related to previously designated cash flow hedges was $ 41 million and $ 46 million, respectively.

As of March 31, 2023, approximately $ 19 million of AOCI associated with previously designated cash flow hedges is estimated to be reclassified to interest expense, net, within the next twelve months.

As of June 30, 2023 and December 31, 2022, AOCI, net of tax, related to previously designated cash flow hedges was $ 38 million and $ 46 million, respectively.

As of June 30, 2023, approximately $ 18 million of AOCI associated with previously designated cash flow hedges is estimated to be reclassified to interest expense, net, within the next twelve months.

Unrecognized Tax Benefits

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federal, state and local, and foreign jurisdictions.

During the three months ended March 31, 2023, the Company did not have a material change to its unrecognized tax benefits.

During the six months ended June 30, 2023, 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.

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

The Company’s income tax benefit for the three months ended March 31, 2023 was $ 43 million, resulting in an effective tax rate for the period of 33.1 %.

The effective tax rate primarily represents the federal statutory rate of 21.0 %, a state statutory tax rate, net of federal benefits, of 8.1 %, and unfavorable impacts related to non-deductible executive compensation, Solar goodwill impairment, and other items, partially offset by favorable impacts from federal tax credits and other items.

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

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

Common Stock and Class B Common Stock

The Company has two classes of common stock, including common stock (“Common Stock”) and Class B common stock (“Class B Common Stock”).

During the three months ended March 31, 2023, shares issued resulted from the vesting of restricted stock units (“RSUs”) and stock option exercises related to share-based compensation awards.

The Company’s income tax benefit (expense) for the three months ended June 30, 2023 was $ 55 million, resulting in an effective tax rate for the period of ( 142.1 )%.

The effective tax rate primarily represents the federal statutory rate of 21.0 %, a state statutory tax rate, net of federal benefits, of ( 43.9 )%, and unfavorable impacts related to the Solar goodwill impairment, non-deductible executive compensation, non-U.S.

earnings, and other items, partially offset by favorable impacts from federal tax credits, losses from equity method investee, and other items.

The Company’s income tax benefit (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.

The Company’s income tax benefit (expense) for the six months ended June 30, 2023 was $ 118 million, resulting in an effective tax rate for the period of 84.2 %.

The effective tax rate primarily represents the federal statutory rate of 21.0 %, a state statutory tax rate, net of federal benefits, of 23.5 %, and unfavorable impacts related to the Solar goodwill impairment, non-deductible executive compensation and other items, partially offset by favorable impacts from federal tax credits and other items.

The Company’s income tax benefit (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 tax 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.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Common Stock and Class B Common Stock

The Company has two classes of common stock, including common stock (“Common Stock”) and Class B common stock (“Class B Common Stock”).

During the six months ended June 30, 2023, shares issued resulted from the vesting of restricted stock units (“RSUs”) and stock option exercises related to share-based compensation awards.

(in thousands, except per share data)

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

Three Months Ended March 31, 2023

Six Months Ended June 30, 2023

2/28/2023 3/16/2023 4/4/2023 $ 0.035 $ 30,342 $ 0.035 $ 1,916

Three Months Ended March 31, 2022

5/2/2023 6/15/2023 7/6/2023 0.035 30,256 0.035 1,916

Subsequent Event - On May 2, 2023, the Company announced a dividend of $ 0.035 per share to holders of Common Stock and Class B Common Stock of record on June 15, 2023, which will be distributed on July 6, 2023.

Total $ 0.070 $ 60,598 $ 0.070 $ 3,832

Six Months Ended June 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

Total $ 0.070 $ 59,870 $ 0.070 $ 3,832

Subsequent Event - On August 8, 2023, 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, 2023, which will be paid on October 4, 2023.

Accumulated Other Comprehensive Income (Loss)

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SHARE-BASED COMPENSATION

During the three months ended March 31, 2023, the Company completed its annual long-term incentive plan equity award to employees and granted approximately 6.6 million RSUs under its 2018 Omnibus Incentive Plan, as amended (the “2018 Plan”) with a weighted-average grant date fair value of $ 7.60 equal to the closing price per share of the Company’s Common Stock on the date of grant.

During the first quarter of 2023, the Company completed its annual long-term incentive plan equity award to employees and granted approximately 6.6 million RSUs under its 2018 Omnibus Incentive Plan, as amended (the “2018 Plan”) with a weighted-average grant date fair value of $ 7.60 equal to the closing price per share of the Company’s Common Stock on the date of grant.

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

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Additionally, the basic and diluted earnings per share computations for Common Stock exclude approximately 9 million unvested shares as their vesting is contingent upon achievement of certain performance requirements.

Three Months Ended March 31,

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

in thousands, except per share amounts

2023 2022 2023 2022

Allocation of net income (loss) - basic $ 86,712 $ 85,994 $ ( 25,030 ) $ 134,499

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Dilutive effect (including conversion of Class B Common Stock) (1)

59,278 62,567 — 64,957

Weighted-average shares outstanding - diluted 916,859 910,809 855,949 911,005

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_________________

(1) During the three months ended March 31, 2023, 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.

During the three months ended March 31, 2022, the diluted earnings per share calculations excluded weighted average shares of approximately 18 million shares as their effects would have been anti-dilutive.

(1) During the three months ended June 30, 2023, the diluted earnings per share calculations excluded approximately 25 million weighted average shares as their effects would have been anti-dilutive.

During the six months ended June 30, 2023, 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.

During the three and six months ended June 30, 2022, the diluted earnings per share calculations excluded approximately 20 million and 19 million weighted average shares, respectively, as their effects would have been anti-dilutive.

Class B Common Stock:

Three Months Ended March 31,

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

in thousands, except per share amounts

2023 2022 2023 2022

Allocation of net income (loss) - basic $ 5,499 $ 5,523 $ ( 1,596 ) $ 8,663

Dilutive effect (1)

( 217 ) ( 233 ) — ( 323 )

Allocation of net income (loss) - diluted $ 5,282 $ 5,290 $ ( 1,596 ) $ 8,340

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Repurchase of Solar Loans

As of March 31, 2023, the liability related to certain loans provided to customers within the Company’s Solar business that the Company may be required to repurchase from third party lenders was approximately $ 71 million.

This liability is partially offset by a net receivable related to the amount the Company ultimately expects to recover from any loans required to be repurchased, either through ongoing loan payments from the customer or proceeds from subsequent resale of the loans.

As of June 30, 2023, the liability related to certain loans provided to customers within the Company’s Solar business that the Company may be required to repurchase from third party lenders was approximately $ 33 million.

This liability is partially offset by a net receivable of $ 23 million related to the amount the Company ultimately expects to recover from any loans required to be repurchased, either through ongoing loan payments from the customer or proceeds from subsequent resale of the loans.

Google Commercial Agreement

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In August 2022, the Company and Google executed an amendment to the Google Commercial Agreement, 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, (together with the initial amounts, the “Google Success Funds”).

During the three months ended March 31, 2023, approximately $ 12.5 million of the Google Success Funds were approved for reimbursement to the Company for certain joint marketing expenses incurred by the Company and recorded as a reduction to advertising expenses.

During the six months ended June 30, 2023, $ 25 million of the Google Success Funds were approved for reimbursement to the Company for certain joint marketing expenses incurred by the Company and recorded as a reduction to advertising expenses, of which the Company received $ 12.5 million during the second quarter of 2023.

In July, the Company was reimbursed for the remaining $ 12.5 million.

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

The Company’s guarantees primarily relate to standby letters of credit related to its insurance programs and totaled $ 84 million and $ 93 million as of March 31, 2023 and December 31, 2022, respectively.

The Company’s guarantees primarily relate to standby letters of credit related to its insurance programs and totaled $ 79 million and $ 93 million as of June 30, 2023 and December 31, 2022, respectively.

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

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

There have been no material changes to these matters from those disclosed in the 2022 Annual Report.

There have been no material changes to these matters from those disclosed in the Amended 2022 Annual Report.

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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of March 31, 2023 and December 31, 2022, the Company’s accrual for ongoing claims and lawsuits within the scope of an insurance program totaled $ 100 million and $ 90 million, respectively.

As of June 30, 2023 and December 31, 2022, the Company’s accrual for ongoing claims and lawsuits within the scope of an insurance program totaled $ 107 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.

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(in thousands)

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Presentation and Classification:

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_________________

(1) Finance right-of-use assets are recorded net of accumulated depreciation, which was approximately $ 114 million and $ 106 million as of March 31, 2023 and December 31, 2022, respectively.

Three Months Ended March 31,

(1) Finance right-of-use assets are recorded net of accumulated depreciation, which was approximately $ 117 million and $ 106 million as of June 30, 2023 and December 31, 2022, respectively.

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

( in thousands )

2023 2022 2023 2022

Operating lease cost $ 10,472 $ 12,032 $ 20,694 $ 24,517

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Total lease cost $ 39,187 $ 49,556 $ 82,075 $ 95,858

Cash Flow and Supplemental Information:

Three Months Ended March 31,

( in thousands )

Right-of-Use Assets Obtained in Exchange for Lease Obligations:

Six Months Ended June 30,

( in thousands )

Operating leases $ 17,563 $ 16,322

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The Company’s use of the funds is also subject to approval by State Farm.

During three months ended March 31, 2023, the Company made payments from the Opportunity Fund of approximately $ 2 million to fund project development initiatives.

As of March 31, 2023, the balance in the Opportunity Fund was approximately $ 100 million, including interest earned on the funds.

As of June 30, 2023 and December 31, 2022, the balance in the Opportunity Fund was approximately $ 97 million and $ 101 million, respectively, and includes payments of $ 5 million partially offset by interest earned of $ 2 million during 2023.

Sunlight Financial LLC

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.”

During the three months ended March 31, 2023 and 2022, total loans funded by Sunlight were approximately $ 45 million and $ 100 million, respectively.

The Company may be required to repurchase loans previously funded by Sunlight in the amount of approximately $ 45 million and $ 56 million as of March 31, 2023 and December 31, 2022, respectively.

The Company also recorded an offsetting net receivable.

During the three months ended March 31, 2023 and 2022, the Company incurred financing fees of approximately $ 6 million and $ 15 million, respectively.

During the three and six months ended June 30, 2023, total loans funded by Sunlight were approximately $ 16 million and $ 61 million, respectively, and the Company incurred financing fees of approximately $ 3 million and $ 9 million, respectively.

During the three and six months ended June 30, 2022, total loans funded by Sunlight were approximately $ 131 million and $ 243 million, respectively, and the Company incurred third-party lender fees of approximately $ 15 million and $ 30 million, respectively, which is recognized as a reduction of Solar installation, product, and other revenue.

As of June 30, 2023, the Company may be required to repurchase loans previously funded by Sunlight in the amount of approximately $ 22 million.

AND SUBSIDIARIES

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(“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.

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.

During the three months ended March 31, 2023 and 2022, fees incurred to Rackspace were not material.

The master services agreement included a minimum purchase commitment of $ 50 million over a seven year term, which the Company has met through spend with Rackspace as well as other parties.

During the six months ended June 30, 2023 and 2022, fees incurred to Rackspace were not material.

Canopy is considered a related party under GAAP as the Company accounts for its investment in Canopy under the equity method of accounting.

During the three months ended March 31, 2023, the Company made an additional equity investment of approximately $ 5 million in Canopy.

During the first quarter of 2023, the Company made an additional equity investment of approximately $ 5 million in Canopy.

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

What changed 10-Q

Item 1. Financial Statements