What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-11-02 compared with 2023-08-08 · 355 added, 199 removed, 642 unchanged (46% of the section changed)

3 unchanged sentences

(in thousands, except share and per share data)

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Current assets:

6 unchanged sentences

Prepaid expenses and other current assets 238,137 306,603

Current assets held for sale

450,297 469,923

Total current assets 1,635,393 1,721,996

5 unchanged sentences

Other assets 771,077 640,932

Noncurrent assets held for sale

895,379 885,514

Total assets $ 17,431,112 $ 17,821,236

5 unchanged sentences

Accrued expenses and other current liabilities 582,272 776,739

Current liabilities held for sale

314,101 298,973

Total current liabilities 2,279,122 2,661,103

3 unchanged sentences

Other liabilities 215,991 240,129

Noncurrent liabilities held for sale

106,960 106,270

Total liabilities 14,192,447 14,428,088

2 unchanged sentences

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

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

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

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

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

issued and outstanding shares of 866,793,978 and 862,098,041 as of September 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 June 30, 2023 and December 31, 2022

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

Additional paid-in capital 7,407,164 7,380,759

7 unchanged sentences

(in thousands, except per share data)

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

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

2023 2022 2023 2022

15 unchanged sentences

Other income (expense) 661 ( 156,118 ) ( 10 ) ( 153,165 )

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

Income (loss) from continuing operations before income taxes and equity in net earnings (losses) of equity method investee 20,787 ( 183,321 ) ( 155,089 ) 5,044

Income tax benefit (expense) ( 38,764 ) 15,800 12,438 ( 37,806 )

Income (loss) before equity in net earnings (losses) of equity method investee 93,949 92,465 ( 22,211 ) 144,110

Income (loss) from continuing operations before equity in net earnings (losses) of equity method investee ( 17,977 ) ( 167,521 ) ( 142,651 ) ( 32,762 )

Equity in net earnings (losses) of equity method investee ( 2,688 ) ( 1,594 ) ( 7,103 ) ( 2,542 )

Income (loss) from continuing operations ( 20,665 ) ( 169,115 ) ( 149,754 ) ( 35,304 )

Income (loss) from discontinued operations, net of tax

( 65,572 ) 7,866 36,891 17,217

Net income (loss) $ ( 86,237 ) $ ( 161,249 ) $ ( 112,863 ) $ ( 18,087 )

Net income (loss) per share - basic:

Common Stock:

Class B Common Stock $ 0.10 $ 0.10 $ ( 0.03 ) $ 0.16

Income (loss) from continuing operations per share - basic

$ ( 0.02 ) $ ( 0.19 ) $ ( 0.16 ) $ ( 0.04 )

Income (loss) from continuing operations per share - diluted

$ ( 0.02 ) $ ( 0.19 ) $ ( 0.16 ) $ ( 0.04 )

Net income (loss) per share - basic

$ ( 0.09 ) $ ( 0.18 ) $ ( 0.12 ) $ ( 0.02 )

Net income (loss) per share - diluted

$ ( 0.09 ) $ ( 0.18 ) $ ( 0.12 ) $ ( 0.02 )

Weighted-average shares outstanding - basic

Common Stock 857,581 848,242 855,949 846,048

857,423 850,230 856,446 847,456

Weighted-average shares outstanding - diluted

857,423 850,230 856,446 847,456

Class B Common Stock:

Income (loss) from continuing operations per share - basic

$ ( 0.02 ) $ ( 0.19 ) $ ( 0.16 ) $ ( 0.04 )

Income (loss) from continuing operations per share - diluted

$ ( 0.02 ) $ ( 0.19 ) $ ( 0.16 ) $ ( 0.04 )

Net income (loss) per share - basic

$ ( 0.09 ) $ ( 0.18 ) $ ( 0.12 ) $ ( 0.02 )

Net income (loss) per share - diluted

Common Stock $ 0.10 $ 0.10 $ ( 0.03 ) $ 0.15

Class B Common Stock $ 0.10 $ 0.10 $ ( 0.03 ) $ 0.15

$ ( 0.09 ) $ ( 0.18 ) $ ( 0.12 ) $ ( 0.02 )

Weighted-average shares outstanding - basic

54,745 54,745 54,745 54,745

Weighted-average shares outstanding - diluted

Common Stock 916,859 910,809 855,949 911,005

Class B Common Stock 54,745 54,745 54,745 54,745

54,745 54,745 54,745 54,745

See Notes to Condensed Consolidated Financial Statements

2 unchanged sentences

(in thousands)

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

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

2023 2022 2023 2022

9 unchanged sentences

(in thousands)

Three Months Ended June 30, 2023

Three Months Ended September 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

6 unchanged sentences

Ending balance 866,794 54,745 $ 8,668 $ 547 $ 7,407,164 $ ( 4,160,955 ) $ ( 16,759 ) $ 3,238,665

Three Months Ended June 30, 2022

Three Months Ended September 30, 2022

5 unchanged sentences

Share-based compensation expense — — — — 16,692 — — 16,692

Contingent forward purchase contract — — — — ( 41,938 ) — — ( 41,938 )

Transactions related to employee share-based compensation plans and other 666 — 7 — 3,095 ( 459 ) — 2,643

4 unchanged sentences

(in thousands)

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

7 unchanged sentences

Ending balance 866,794 54,745 $ 8,668 $ 547 $ 7,407,164 $ ( 4,160,955 ) $ ( 16,759 ) $ 3,238,665

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

5 unchanged sentences

Share-based compensation expense — — — — 49,644 — — 49,644

Contingent forward purchase contract — — — — ( 41,938 ) — — ( 41,938 )

Transactions related to employee share-based compensation plans and other

5 unchanged sentences

(in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities:

9 unchanged sentences

Unrealized (gain) loss on interest rate swap contracts ( 38,477 ) ( 312,603 )

Change in fair value of other financial instruments — 157,550

Other non-cash items, net 102,843 104,293

Changes in operating assets and liabilities, net of effects of acquisitions:

Changes in operating assets and liabilities, net of effects of acquisitions and divestitures:

Deferred subscriber acquisition costs ( 295,440 ) ( 304,404 )

29 unchanged sentences

Business and Organization

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.

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

As discussed below, on October 2, 2023, the Company divested its Commercial Business (as defined below), which provided security and other solutions to commercial customers.

The Company is majority-owned by Prime Security Services TopCo (ML), L.P., which is majority-owned by Prime Security Services TopCo Parent, L.P.

6 unchanged sentences

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

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

The financial statements included herein comprise the consolidated results of ADT Inc.

3 unchanged sentences

The Company uses the equity method of accounting to account for an investment in which it has the ability to exercise significant influence but does not control.

As discussed below under the heading “Commercial Divestiture,” beginning in the third quarter of 2023, the Company presented its Commercial Business as discontinued operations.

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

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

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

The Condensed Consolidated Balance Sheet as of December 31, 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 Amended 2022 Annual Report (as defined and discussed below).

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

4 unchanged sentences

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.

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 which GTCR agreed to acquire all of the issued and outstanding equity interests of F&S Holdings, which directly or indirectly held all of the issued and outstanding equity interests in the subsidiaries of ADT that operated ADT’s commercial business (the “Commercial Business”) (the “Commercial Divestiture”).

On October 2, 2023, the Company completed the previously announced Commercial Divestiture for a total purchase price of approximately $ 1,613 million in cash, subject to customary post-closing adjustments, and received net proceeds of approximately $ 1,585 million, excluding transaction costs.

Beginning in the third quarter of 2023, the Company presented its Commercial Business as a discontinued operation as the Commercial Divestiture met all of the held for sale criteria for the disposal group and represented a strategic shift that has and will continue to have a major effect on the Company’s operations and financial statements.

The change is reflected in all periods presented.

Additionally, the cash flows and comprehensive income (loss) of the Commercial Business have not been segregated and are included in the interim Condensed Consolidated Statements of Cash Flows and Condensed Consolidated Statements of Comprehensive Income (Loss), respectively, for all periods presented.

Unless otherwise noted, amounts and disclosures throughout these Notes to Condensed Consolidated Financial Statements relate to the Company’s continuing operations.

Refer to Note 5 “Divestitures” for additional information.

Use of Estimates

3 unchanged sentences

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 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:

As of September 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 historically reported results for three operating and reportable segments organized based on customer type:

Consumer and Small Business (“CSB”), Commercial, and Solar.

As a result of the Commercial Divestiture, results of the Commercial Business are classified as discontinued operations and thus excluded from both continuing operations and segment results for all periods presented.

Accordingly, the Company now reports its results in two operating and reportable segments, CSB and Solar, with the change reflected in all periods presented.

Prior to the third quarter of 2023, the Commercial Business was reflected in the Commercial reportable segment.

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

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

Commercial Divestiture

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.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Accounting Pronouncements

13 unchanged sentences

Early adoption is permitted.

The Company is currently evaluating this guidance.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company is monitoring any potential impact.

Significant Accounting Policies

2 unchanged sentences

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) June 30, 2023 December 31, 2022

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

Cash and cash equivalents $ 238,582 $ 257,223

7 unchanged sentences

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) June 30, 2023 December 31, 2022

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

Gross carrying amount $ 6,261,940 $ 5,981,008

2 unchanged sentences

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 (“SG&A”), respectively, as follows:

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

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

(in thousands) 2023 2022 2023 2022

3 unchanged sentences

Accrued Expenses and Other Current Liabilities

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

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

Accrued interest $ 69,757 $ 156,495

1 unchanged sentence

Opportunity Fund (see Note 16 “Related Party Transactions”)

97,367 100,802

Operating lease liabilities (see Note 15 “Leases”)

16,006 20,741

Other accrued liabilities 285,658 358,992

Accrued expenses and other current liabilities $ 582,272 $ 776,739

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Merger, Restructuring, Integration, and Other

Merger, restructuring, integration, and other represents certain direct and incremental costs resulting from acquisitions made by the Company, integration costs as a result of those acquisitions, costs related to the Company’s restructuring efforts, as well as fair value remeasurements and impairment charges on certain strategic investments.

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.

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

As of September 30, 2023 and December 31, 2022, investments in money market mutual funds were $ 263 million and $ 145 million, respectively.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 “2020 Receivables Facility”) approximate their fair values as interest rates on these borrowings approximate current market rates.

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

(in thousands) Carrying

8 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.

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

(in thousands) Carrying

1 unchanged sentence

Retail installment contract receivables, net $ 664,000 $ 479,686 $ 531,516 $ 385,114

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

REVENUE AND RECEIVABLES

Disaggregated Revenue

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

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

(in thousands) 2023 2022 2023 2022

2 unchanged sentences

Total CSB 1,179,873 1,110,640 3,480,426 3,264,815

Monitoring and related services 143,809 134,350 288,493 262,618

Security installation, product, and other 203,711 163,136 394,070 325,045

Total Commercial 347,520 297,486 682,563 587,663

Solar installation, product, and other 57,611 179,153 279,978 586,189

2 unchanged sentences

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

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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 June 30, Six Months Ended June 30,

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

( in thousands )

1 unchanged sentence

Amortization of deferred subscriber acquisition revenue $ 77,471 $ 61,530 $ 220,779 $ 169,048

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

Approximately half of security installation, product, and other revenue generated by the Commercial segment is recognized over time primarily using a cost-to-cost measure of progress method.

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, which is primarily recognized at a point in time based upon the nature of the transaction and contractual terms, and any monitoring and related services, which are recognized when these services are provided to the customer.

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.

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

Three Months Ended September 30, Nine Months Ended September 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

Third-party lender financing fees

$ 11,596 $ 28,933 $ 40,066 $ 107,005

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,

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

( in thousands )

6 unchanged sentences

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

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands) 2023 2022

7 unchanged sentences

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

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Retail Installment Contract Receivables, net

3 unchanged sentences

The balance of unbilled retail installment contract receivables comprises:

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

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

Retail installment contract receivables, gross $ 665,339 $ 532,406

6 unchanged sentences

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

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.

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

As of September 30, 2023 and December 31, 2022, retail installment contract receivables, net, used as collateral for borrowings under the 2020 Receivables Facility were $ 594 million and $ 506 million, respectively.

Refer to Note 8 “Debt” for further discussion regarding the 2020 Receivables Facility.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Contract Assets

2 unchanged sentences

The financing component of contract assets is not significant.

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

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

The balance of contract assets for residential transactions comprises:

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

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

Contract assets, gross $ 39,785 $ 52,591

5 unchanged sentences

Contract assets, net $ 34,672 $ 47,138

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEGMENT INFORMATION

As discussed in Note 1 “Description of Business and Summary of Significant Accounting Policies,” the Company reports results in three operating and reportable segments:

CSB, Commercial, and Solar.

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 Amended 2022 Annual Report.

As discussed in Note 1 “Description of Business and Summary of Significant Accounting Policies,” effective in the third quarter of 2023, the Company reports results in two operating and reportable segments:

CSB and Solar.

Prior to the third quarter of 2023, the Commercial Business was reflected in the Commercial reportable segment.

Certain allocated shared costs that were previously included in the Commercial reportable segment that do not qualify to be presented within discontinued operations are now reflected in the CSB reportable segment consistent with other unallocated corporate and other costs as discussed below.

There have been no other 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:

1 unchanged sentence

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 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 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.

The CSB segment includes general corporate costs and other income and expense items not included in the Commercial and Solar segments.

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

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

The CSB and Solar segments include the respective 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.

The CSB segment includes general corporate costs and other income and expense items not included in the Solar segment.

The CODM uses Adjusted EBITDA from continuing operations (“Adjusted EBITDA”), which is the Company’s segment profit measure, to evaluate segment performance.

Adjusted EBITDA is defined as income or loss from continuing operations adjusted for (i) interest;

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

1 unchanged sentence

(v) share-based compensation expense;

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

(vi) merger, restructuring, integration, and other items such as separation costs;

(vii) losses on extinguishment of debt;

5 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 June 30, Six Months Ended June 30,

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

(in thousands) 2023 2022 2023 2022

CSB $ 1,179,873 $ 1,110,640 $ 3,480,426 $ 3,264,815

Commercial 347,520 297,486 682,563 587,663

Solar 57,611 179,153 279,978 586,189

Total Revenue $ 1,237,484 $ 1,289,793 $ 3,760,404 $ 3,851,004

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 June 30, Six Months Ended June 30,

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table presents Adjusted EBITDA by segment and a reconciliation to consolidated income (loss) from continuing operations before income taxes and equity in net earnings (losses) of equity method investee:

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

(in thousands) 2023 2022 2023 2022

1 unchanged sentence

CSB $ 623,446 $ 589,640 $ 1,854,288 $ 1,723,785

Commercial 44,970 31,363 85,758 54,993

Solar ( 40,758 ) ( 6,476 ) ( 88,743 ) ( 4,469 )

2 unchanged sentences

Total segment Adjusted EBITDA

$ 582,688 $ 583,164 $ 1,765,545 $ 1,719,316

Interest expense, net 147,187 29,832 402,381 117,331

7 unchanged sentences

88,367 200,974 511,176 200,974

Acquisition-related adjustments (3)

Change in fair value of financial instruments (3)

— 157,550 — 157,550

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

Other, net (4)

Non-cash acquisition-related adjustments and other, net (4)

( 705 ) ( 4,682 ) 2,003 33,452

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

Equity in net earnings (losses) of equity method investee ( 2,688 ) ( 1,594 ) ( 7,103 ) ( 2,542 )

Income (loss) from continuing operations before income taxes and equity in net earnings (losses) of equity method investee $ 20,787 $ ( 183,321 ) $ ( 155,089 ) $ 5,044

________________

(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 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.

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

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

Refer to Note 7 “Goodwill and Other Intangible Assets.”

(3) Represents the change in fair value of the Forward Contract associated with the State Farm Transaction.

(4) Nine months ended September 30, 2022 primarily includes customer backlog intangible asset amortization related to the ADT Solar Acquisition of $ 30 million, which was fully amortized as of March 2022.

The remaining balance primarily included ADT Solar purchase accounting adjustments and net radio conversion costs, offset by gain on sale of a business.

There was no acquisition activity during the nine months ended September 30, 2023.

During the nine months ended September 30, 2022, total consideration for continuing and discontinued operations 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.

The Company may decide to divest a portion of its business for various reasons, including efforts to focus on its other businesses.

The Company presents discontinued operations for components of the business that are either disposed of through sale (or qualify as held for sale), abandonment, or spin-off if these actions also represent a strategic shift that has or will have a major effect on the Company’s financial results.

Commercial Divestiture

As discussed in Note 1 “Description of Business and Summary of Significant Accounting Policies,” as a result of the Commercial Divestiture, the disposal group met the established held for sale criteria, and the Company classified the assets and

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

liabilities related to the Commercial Business as held for sale in the Condensed Consolidated Balance Sheets for the periods presented.

The Commercial Divestiture supports the Company’s strategic journey and strengthens its financial profile.

Furthermore, the Commercial Divestiture represents a strategic shift that has and will continue to have a major effect on the Company’s operations and financial statements, and therefore, the results of operations of the Commercial Business are classified as discontinued operations in the Company’s Condensed Consolidated Statements of Operations for the periods presented.

As the agreed upon sale price was substantially higher than the carrying value of the Commercial Business, the Company did not record any impairment or adjustments when recognizing the disposal group at the lower of its carrying amount or fair value less cost to sell.

As discussed in Note 3 “Segment Information,” the Commercial Business was previously reflected in the Commercial reportable segment.

On October 2, 2023, the Company completed the Commercial Divestiture, and received net proceeds of approximately $ 1,585 million, subject to certain customary post-closing adjustments as set forth in the Commercial Purchase Agreement.

In addition, the Company will recognize a significant gain on sale, which will be recognized in income (loss) from discontinued operations during the fourth quarter of 2023.

The Company used a portion of the net proceeds to redeem approximately $ 1.3 billion of the Company’s first lien term loan facility due 2026 (the “First Lien Term Loan due 2026”).

The Company intends to use the remaining net proceeds and cash on hand to redeem $ 500 million of the Company’s outstanding 5.250 % First-Priority Senior Secured Notes due 2024 (the “First Lien Notes due 2024”) during the Company’s fourth quarter of 2023.

Refer to Note 8 “Debt” for further discussion.

Refer to Note 13 “Net Income (Loss) per Share” for basic and diluted earnings per share information for discontinued operations.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following reconciliations represent the major classes of line items of the Commercial Business within the Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Operations and certain information within the Condensed Consolidated Statements of Cash Flows for the periods presented.

Balance Sheet Information

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

Accounts receivable, net

$ 254,787 $ 262,757

Inventories, net 102,927 104,139

Work-in-progress 48,106 68,782

Prepaid expenses and other current assets

42,012 34,245

Total current assets of discontinued operations held for sale

447,832 469,923

Property and equipment, net 76,843 69,777

Subscriber system assets, net 138,087 142,763

Intangible assets, net 151,287 164,783

Goodwill 336,589 336,589

Deferred subscriber acquisition costs, net 89,762 88,966

Other assets 82,196 82,636

Total assets of discontinued operations held for sale

$ 1,322,596 $ 1,355,437

Current maturities of long-term debt $ 18,372 $ 14,293

Accounts payable 77,631 68,855

Deferred revenue 108,123 92,784

Accrued expenses and other current liabilities 107,535 123,041

Total current liabilities of discontinued operations held for sale

311,661 298,973

Long-term debt 11,418 9,952

Deferred subscriber acquisition revenue 63,075 64,605

Other liabilities 32,468 31,713

Total liabilities of discontinued operations held for sale

$ 418,622 $ 405,243

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Statements of Operations Information

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

(in thousands) 2023 2022 2023 2022

Revenue $ 351,400 $ 314,298 $ 1,033,962 $ 898,864

Cost of revenue

233,204 215,665 688,305 616,644

Selling, general, and administrative expenses 72,601 65,054 213,113 195,444

Depreciation and intangible asset amortization ( 3,186 ) 18,915 37,691 58,205

Other income and expense items 8,814 1,792 19,222 2,506

Income (loss) from discontinued operations before income taxes 39,967 12,872 75,631 26,065

Income tax benefit (expense) ( 105,539 ) ( 5,006 ) ( 38,740 ) ( 8,848 )

Income (loss) from discontinued operations, net of tax $ ( 65,572 ) $ 7,866 $ 36,891 $ 17,217

Cash Flow Information

Nine Months Ended September 30,

(in thousands) 2023 2022

Depreciation and intangible asset amortization $ 37,691 $ 58,205

Share-based compensation expense $ 11,699 $ 9,661

Subscriber system asset expenditures $ 8,902 $ 23,725

Purchases of property and equipment $ 4,399 $ 3,378

Transition Services Agreement

In connection with the Commercial Divestiture, the Company entered into a Transition Services Agreement (the “TSA”), pursuant to which the Company and the Commercial Business will provide certain transitional services relating to ongoing support and other administrative functions to each other for a transitional period of up to 24 months after the closing of the Commercial Divestiture.

TSA fees charged to the Commercial Business represent charges for internal labor as well as certain third-party costs identified in connection with providing such services.

Income from the TSA will be recognized in other income (expense), and expenses incurred by the Company to support the transition will be recorded based on the nature of the expense.

ADT Brand License and Intellectual Property (“IP”) Rights

The Company and GTCR entered into an agreement granting GTCR a license to continue to use the ADT brand and other Company trademarks for a period of twelve months to transition from Company branding (the “Brand License”).

The Company has also agreed to a covenant not to assert a claim against GTCR for infringement of Company's patents as of the Commercial Divestiture for products and services that were used in the Commercial Business prior to the Commercial Divestiture, and has provided GTCR with a paid-up, irrevocable, non-assignable (with limited exceptions) license to continue to use certain software and other Company IP in the same manner.

Other Divestitures

During the three months ended September 30, 2023, the Company entered into an Asset Purchase Agreement to sell substantially all of the assets and certain specified liabilities of its Vintage Security business (the “Vintage Security Divestiture”).

As a result, the disposal group was classified as held for sale as of September 30, 2023, and the assets and liabilities of the Vintage Security business were reflected as held for sale in the Condensed Consolidated Balance Sheet as of September 30, 2023.

The results of operations of the Vintage Security business are reflected in the CSB segment and did not meet the criteria to be presented as a discontinued operation.

On October 2, 2023, the Company completed the Vintage Security Divestiture for net proceeds of approximately $ 36 million, subject to certain customary post-closing adjustments.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

During the nine months ended September 30, 2022, proceeds related to disposal activities totaled approximately $ 27 million, resulting in a gain on sale of approximately $ 10 million recognized in SG&A.

EQUITY METHOD INVESTMENTS

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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 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.

As of September 30, 2023 and December 31, 2022, the Canopy Investment’s carrying amount was approximately $ 5 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.

Subsequent event - In October 2023, the Company began discussions with Ford to sell its shares in Canopy, in accordance with the terms of the agreement between the Company and Ford, which includes a put right under which the Company is entitled to recover its full equity investment in Canopy plus a premium.

The sale of ADT’s equity investment in Canopy is expected to close by the first quarter of 2024, after which the Company will no longer hold an investment in Canopy.

GOODWILL AND OTHER INTANGIBLE ASSETS

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

(in thousands) CSB Commercial Solar Total

(in thousands) CSB Solar Total

Balance as of December 31, 2022 $ 4,919,251 $ 511,176 $ 5,430,427

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Impairment — ( 511,176 ) ( 511,176 )

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

Reclassification to held for sale (2)

( 15,475 ) — ( 15,475 )

(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.

Balance as of September 30, 2023 $ 4,903,899 $ — $ 4,903,899

________________

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

(2) Relates to the presentation of Vintage Security as held for sale as discussed in Note 5 “Divestitures.”

As of September 30, 2023 and December 31, 2022, the Company had accumulated goodwill impairment losses of $ 712 million and $ 201 million, respectively, associated with the Company’s Solar reporting unit.

Solar Goodwill Impairment

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.

During the first and second quarters of 2023, the Company performed interim impairment quantitative assessments on the Solar reporting unit as a result of triggering events as of March 31, 2023 and June 30, 2023 and recorded goodwill impairment charges of $ 242 million and $ 181 million during the first and second quarters of 2023, respectively.

These triggering events resulted from the then-current macroeconomic conditions, including the impact of rising interest rates, as well as ADT Solar’s continued underperformance of operating results in each quarter relative to expectations.

As a result and as previously disclosed, the Solar reporting unit was considered at risk for future impairment following the impairments in the first and second quarters of 2023.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

In addition, the Company concluded there was a triggering event as of September 30, 2023, related to its Solar reporting unit as a result of continued deterioration of industry conditions and macroeconomic decline, as well as the Company’s recent plan to significantly reduce the footprint of its Solar reporting unit, including certain existing underperforming branches and related headcount reductions.

As a result, the Company determined that the remaining balance of goodwill was not recoverable and recorded a goodwill impairment charge of $ 88 million in the third quarter of 2023.

Following the impairments during 2023, the balance of goodwill in the Solar reporting unit was zero .

The Company also assessed the recoverability of other long-lived assets related to its Solar business, and impairment charges recorded were not material.

The fair value of the Solar reporting unit is estimated using the income approach, which includes 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 relies 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 unexpected regulatory changes.

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

As the carrying value of the Solar reporting unit approximates its fair value following the impairment charge, the Solar reporting unit continues to be considered at risk of future impairment.

If the Company’s assumptions are not realized, or if there are future changes in any of the assumptions due to a change in economic conditions or otherwise, it is possible that a further impairment charge may need to be recorded in the future.

The Company did not identify any triggering events associated with its other reporting units.

Other Intangible Assets

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

(in thousands) Gross Carrying

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Amortization ( 400,790 )

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

Balance as of September 30, 2023 $ 2,558,285

________________

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Definite-Lived Intangible Asset Amortization Expense

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

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

(in thousands) 2023 2022 2023 2022

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Description Issued Maturity Interest Rate (1)

Interest Payable June 30, 2023 December 31, 2022

Interest Payable September 30, 2023 December 31, 2022

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

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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 5/20/2028 Various Monthly 402,553 354,741

2020 Receivables Facility

3/5/2020 8/20/2028 Various Monthly 423,047 354,741

Other debt (2)

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_________________

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

(1) Interest rate as of September 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.

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(3) Refer to Note 15 “Leases” for additional information regarding the Company’s finance leases.

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

As of September 30, 2023, the Company was in compliance with all financial covenant and other maintenance tests for all of its debt obligations.

Significant changes in the Company’s debt during the nine months ended September 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 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.

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 the First Lien Term Loan due 2026 and the First Lien Revolving Credit Facility.

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

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

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

During the nine months ended September 30, 2022, the Company borrowed $ 480 million and repaid $ 505 million under its First Lien Revolving Credit Facility.

Subsequent Event - In October 2023, the Company redeemed approximately $ 1.3 billion of the First Lien Term Loan due 2026 using net proceeds from the Commercial Divestiture.

Further, the Company refinanced the remaining outstanding balance of the First Lien Term Loan due 2026 with a new $ 1,375 million 7 -year term loan B due 2030 (the “First Lien Term Loan B due 2030”) through an amendment to the existing First Lien Credit Agreement.

The First Lien Term Loan B due 2030 requires scheduled quarterly amortization payments, commencing on March 31, 2024, equal to 0.25 % of the original principal amount of the First Lien Term Loan B due 2030, with the remaining balance payable at maturity.

The Company may make voluntary prepayments on the First Lien Term Loan B due 2030 at any time prior to maturity at par, subject to a 1.00 % prepayment premium in the event of certain specified refinancing events at any time during the first six months after the Closing Date.

The First Lien Term Loan B due 2030 bears interest at a rate equal to, at the Company’s option, either (a) a term SOFR rate (“Term SOFR”) with a floor of zero or (b) a base rate determined by reference to the highest of (i) the federal funds rate plus 0.50 % per annum, (ii) the rate of interest per annum last quoted by The Wall Street Journal as the “Prime Rate” in the United States and (iii) the one-month adjusted term SOFR plus 1.00 % per annum (“Base Rate”), in each case, plus an applicable margin of 2.50 % per annum for Term SOFR loans and 1.50 % per annum for Base Rate loans.

The Company has elected the Term SOFR alternative to apply to borrowings of the First Lien Term Loan B due 2030.

Other than as described above, the First Lien Term Loan B due 2030 continues to have the same terms as provided under the existing First Lien Credit Agreement.

Term Loan A Facility

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The Term Loan A Borrowers may make voluntary prepayments under the Term Loan A Facility at any time prior to maturity at par.

Borrowings under the Term Loan A Facility bear interest at a rate equal to, at Prime Borrower’s option, either (a) a term SOFR rate plus an adjustment of 0.10 % (“Term SOFR”) or (b) a base rate determined by reference to the highest of (i) the federal funds rate plus 0.50 % per annum, (ii) the rate of interest per annum last quoted by The Wall Street Journal as the “Prime Rate” in the U.S., and (iii) the one-month adjusted term SOFR plus 1.00 % per annum, in each case, plus an applicable margin of 2.50 % per annum for SOFR loans and 1.50 % per annum for base rate loans, subject to adjustments based on certain specified net first lien leverage ratios.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

net first lien leverage ratios.

Prime Borrower has elected the Term SOFR alternative to apply to borrowings under the Term Loan A Facility.

6 unchanged sentences

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

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.

On May 2, 2023, 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.

Loss on extinguishment of debt was not material.

Subsequent Event - In October 2023, the Company issued a notice of redemption to redeem approximately $ 500 million principal amount of the outstanding First Lien Notes due 2024 by the end of 2023 using remaining net proceeds from the Commercial Divestiture and cash on hand.

2020 Receivables Facility

1 unchanged sentence

In March 2023, the Company amended the agreement governing the 2020 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 June 30, 2023, the Company had an uncommitted available borrowing capacity under the Receivables Facility of approximately $ 97 million.

As of September 30, 2023, the Company had an uncommitted available borrowing capacity under the 2020 Receivables Facility of approximately $ 77 million.

The 2020 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 2020 Receivables Facility, as presented above.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Solar Receivables Facility

7 unchanged sentences

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

As of September 30, 2023, we have not borrowed any amounts under the Solar Receivable Facility.

DERIVATIVE FINANCIAL INSTRUMENTS

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Interest Rate Swaps :

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) :

During the nine months ended September 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.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Execution Maturity Designation Notional Amount

3 unchanged sentences

Classification and Fair Value of Interest Rate Swaps:

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

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

Prepaid expenses and other current assets $ 94,579 $ 78,110

2 unchanged sentences

Unrealized Gain (Loss) on Interest Rate Swaps:

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

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

(in thousands) 2023 2022 2023 2022

Gain (loss) included in interest expense, net $ 16,380 $ 108,041 $ 38,477 $ 312,603

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Cash Flow Hedges Reclassifications out of AOCI:

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

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

( in thousands )

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Income tax (benefit) expense $ ( 7,245 ) $ ( 1,301 ) $ ( 9,702 ) $ ( 6,915 )

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.

During the nine months ended September 30, 2023, the Company recorded an additional $ 25 million to interest expense, net associated with the reclassification from AOCI of historical losses related to certain interest rate swaps for which the Company previously applied hedge accounting but for which the cash flows are probable of not occurring as a result of the partial redemption of the Company’s First Lien Term Loan due 2026 in October 2023, as discussed in Note 8 “Debt”.

As of September 30, 2023 and December 31, 2022, AOCI, net of tax, related to previously designated cash flow hedges was $ 15 million and $ 46 million, respectively.

As of September 30, 2023, AOCI associated with previously designated cash flow hedges that is estimated to be reclassified to interest expense, net, within the next twelve months is not material.

Unrecognized Tax Benefits

1 unchanged sentence

federal, state and local, and foreign jurisdictions.

During the six months ended June 30, 2023, the Company did not have a material change to its unrecognized tax benefits.

During the nine months ended September 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.

1 unchanged sentence

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

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.

The discussion below is based on the continuing operations of the Company.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company’s income tax benefit (expense) for the three months ended September 30, 2023 was $( 39 ) million, resulting in an effective tax rate for the period of 186.5 %.

The effective tax rate primarily represents the federal statutory rate of 21.0 %, a state statutory tax rate, net of federal benefits, of 34.0 %, 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, impacts from dispositions and acquisitions, and losses from equity method investee and other items.

The Company’s income tax benefit (expense) for the three months ended September 30, 2022 was $ 16 million, resulting in an effective tax rate for the period of 8.6 %.

The effective tax rate primarily represents the federal statutory rate of 21.0 %, a state statutory tax rate, net of federal benefits, of 6.0 %, and 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 (expense) for the nine months ended September 30, 2023 was $ 12 million, resulting in an effective tax rate for the period of 8.0 %.

The effective tax rate primarily represents the federal statutory rate of 21.0 %, a state statutory tax rate, net of federal benefits, of 21.4 %, and unfavorable impacts related to the Solar goodwill impairment, non-deductible executive compensation, and non-U.S.

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

The Company’s income tax benefit (expense) for the nine months ended September 30, 2022 was $( 38 ) million, resulting in an effective tax rate for the period of 749.5 %.

The effective tax rate primarily represents the federal statutory tax rate of 21.0 %, a state statutory tax rate, net of federal benefits, of 5.1 %, as well as unfavorable impacts related to the fair value adjustment of the Forward Contract, prior year return adjustments, and other items, partially offset by favorable impacts from R&D credits, changes in the Company’s valuation allowances, legislative changes, and other 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 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.

During the nine months ended September 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

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

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

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

8/8/2023 9/15/2023 10/4/2023 0.035 30,405 0.035 1,916

Total $ 0.105 $ 91,003 $ 0.105 $ 5,748

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

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

5/5/2022 6/16/2022 7/5/2022 0.035 30,028 0.035 1,916

8/4/2022 9/15/2022 10/4/2022 0.035 30,112 0.035 1,916

Total $ 0.105 $ 89,982 $ 0.105 $ 5,748

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.

Subsequent Event - On November 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 December 14, 2023, which will be paid on January 9, 2024.

Accumulated Other Comprehensive Income (Loss)

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There were no other material reclassifications out of AOCI.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SHARE-BASED COMPENSATION

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

Share-based compensation expense included in discontinued operations was approximately $ 6 million and $ 12 million during the three and nine months ended September 30, 2023, respectively, and approximately $ 3 million and $ 10 million during the three and nine months ended September 30, 2022, respectively.

NET INCOME (LOSS) PER SHARE

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Diluted net income (loss) per share gives effect to all securities representing potential common shares that were dilutive and outstanding during the period for each class of common stock and excludes potentially dilutive securities whose effect would have been anti-dilutive.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Common Stock:

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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 June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 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

Allocation of income (loss) from continuing operations - basic

$ ( 19,424 ) $ ( 158,877 ) $ ( 140,750 ) $ ( 33,141 )

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

Allocation of net income (loss) - diluted $ 88,845 $ 88,143 $ ( 25,030 ) $ 138,655

Allocation of income (loss) from continuing operations - diluted

$ ( 19,424 ) $ ( 158,877 ) $ ( 140,750 ) $ ( 33,141 )

Allocation of income (loss) from discontinued operations, net of tax - basic $ ( 61,637 ) $ 7,390 $ 34,675 $ 16,172

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

Allocation of income (loss) from discontinued operations, net of tax - diluted $ ( 61,637 ) $ 7,390 $ 34,675 $ 16,172

Weighted-average shares outstanding - basic 857,423 850,230 856,446 847,456

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

59,278 62,567 — 64,957

Weighted-average shares outstanding - diluted 857,423 850,230 856,446 847,456

Net income (loss) per share - basic $ 0.10 $ 0.10 $ ( 0.03 ) $ 0.16

Net income (loss) per share - diluted $ 0.10 $ 0.10 $ ( 0.03 ) $ 0.15

Income (loss) from continuing operations per share - basic

$ ( 0.02 ) $ ( 0.19 ) $ ( 0.16 ) $ ( 0.04 )

(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.

Income (loss) from continuing operations per share - diluted

$ ( 0.02 ) $ ( 0.19 ) $ ( 0.16 ) $ ( 0.04 )

Income (loss) per share from discontinued operations, net of tax - basic

$ ( 0.07 ) $ 0.01 $ 0.04 $ 0.02

Income (loss) per share from discontinued operations, net of tax - diluted

$ ( 0.07 ) $ 0.01 $ 0.04 $ 0.02

_________________

(1) During the three and nine months ended September 30, 2023 and September 30, 2022, 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.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Class B Common Stock:

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

Three Months Ended September 30, Nine Months Ended September 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

Allocation of net income (loss) from continuing operations - basic

$ ( 1,241 ) $ ( 10,238 ) $ ( 9,004 ) $ ( 2,163 )

Dilutive effect

Allocation of net income (loss) from continuing operations - diluted

$ ( 1,241 ) $ ( 10,238 ) $ ( 9,004 ) $ ( 2,163 )

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

Allocation of income (loss) from discontinued operations, net of tax - basic $ ( 3,935 ) $ 476 $ 2,216 $ 1,045

Dilutive effect

Allocation of income (loss) from discontinued operations, net of tax - diluted $ ( 3,935 ) $ 476 $ 2,216 $ 1,045

Weighted-average shares outstanding - basic 54,745 54,745 54,745 54,745

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Weighted-average shares outstanding - diluted 54,745 54,745 54,745 54,745

Net income (loss) per share - basic $ 0.10 $ 0.10 $ ( 0.03 ) $ 0.16

Net income (loss) per share - diluted $ 0.10 $ 0.10 $ ( 0.03 ) $ 0.15

Net income (loss) from continuing operations per share - basic

$ ( 0.02 ) $ ( 0.19 ) $ ( 0.16 ) $ ( 0.04 )

Net income (loss) from continuing operations per share - diluted

$ ( 0.02 ) $ ( 0.19 ) $ ( 0.16 ) $ ( 0.04 )

Income (loss) per share from discontinued operations, net of tax - basic

$ ( 0.07 ) $ 0.01 $ 0.04 $ 0.02

Income (loss) per share from discontinued operations, net of tax - diluted

$ ( 0.07 ) $ 0.01 $ 0.04 $ 0.02

________________

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

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

COMMITMENTS AND CONTINGENCIES

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Repurchase of Solar 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.

As of September 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 $ 16 million.

This liability is partially offset by a net receivable of $ 6 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.

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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 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.

During the three and nine months ended September 30, 2023, $ 27.5 million and $ 40 million, respectively, of the Google Success Funds were reimbursed to the Company for certain joint marketing expenses incurred by the Company.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 $ 79 million and $ 93 million as of June 30, 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 September 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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The Company has not accrued for any losses for which the likelihood of loss cannot be assessed, is less than probable, or the range of possible loss cannot be estimated.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

As of September 30, 2023 and December 31, 2022, the Company’s accrual for ongoing claims and lawsuits within the scope of an insurance program totaled $ 110 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.

3 unchanged sentences

(in thousands)

June 30, 2023 December 31, 2022

September 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 $ 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,

(1) Finance right-of-use assets are recorded net of accumulated depreciation, which was approximately $ 68 million and $ 61 million as of September 30, 2023 and December 31, 2022, respectively.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

( in thousands )

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Right-of-Use Assets Obtained in Exchange for Lease Obligations (1) :

Six Months Ended June 30,

Nine Months Ended September 30,

( in thousands )

1 unchanged sentence

Finance leases $ 62,203 $ 37,275

_________________

(1) Includes both continuing and discontinued operations.

Company as Lessor

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

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

RELATED PARTY TRANSACTIONS

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At the Closing, the Company, ADT LLC (an indirect wholly owned subsidiary of the Company), and State Farm entered into a Development Agreement (the “State Farm Development Agreement”) pursuant to which State Farm committed up to $ 300 million to fund certain initiatives as agreed to between the Company and State Farm related to the partnership (the “Opportunity Fund”).

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Additionally at the Closing, the Company received $ 100 million of the Opportunity Fund, which will be restricted until such time as the Company uses the funds in accordance with the State Farm Development Agreement.

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

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.

As of September 30, 2023 and December 31, 2022, the balance in the Opportunity Fund was approximately $ 97 million and $ 101 million, respectively, and includes payments of $ 6 million partially offset by interest earned 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 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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

During the three and nine months ended September 30, 2023, total loans funded by Sunlight were approximately $ 9 million and $ 71 million, respectively, and the Company incurred financing fees of approximately $ 2 million and $ 11 million, respectively.

During the three and nine months ended September 30, 2022, total loans funded by Sunlight were approximately $ 116 million and $ 359 million, respectively, and the Company incurred financing fees of approximately $ 14 million and $ 44 million, respectively.

As of September 30, 2023, the Company may be required to repurchase loans previously funded by Sunlight in the amount of approximately $ 10 million.

During October 2020, the Company entered into a master services agreement with Rackspace US, Inc.

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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.

During the nine months ended September 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.

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 1. Financial Statements