What changed in this filing

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Item 1A. Risk Factors

2023-11-02 compared with 2023-08-08 · 25 added, 31 removed, 7 unchanged (89% of the section changed)

3 unchanged sentences

There have been no material changes in our risk factors from those disclosed in our Amended 2022 Annual Report, except as discussed below:

Risks Related to the Pending Divestiture of our Commercial Business

The pending Divestiture of our Commercial Business is subject to various risks, uncertainties and conditions and may not be completed on the terms or timeline currently contemplated, if at all, which could have a material adverse effect on our financial condition and results of operations.

On August 8, 2023, we announced the entry into a definitive agreement to sell our Commercial Business to an affiliate of GTCR for a purchase price of approximately $1.6 billion, subject to customary purchase price adjustments (the “Divestiture”).

The Divestiture has been approved by our Board and is expected to close in the fourth quarter of 2023, subject to customary closing conditions, including regulatory approvals.

There can be no assurance regarding the ultimate timing of the Divestiture or that the Divestiture will be completed as expected.

Unanticipated developments could delay, prevent or otherwise adversely affect the Divestiture, including but not limited to potential problems or delays in obtaining regulatory approvals.

During the period leading to closing the Divestiture, whether or not the Divestiture is completed, our ongoing businesses may be materially adversely affected, including as a result of one or more of the following:

• the diversion of management’s attention from operating and growing the remaining businesses as a result of the time and effort required to execute the Divestiture;

• expenses incurred in connection with the Divestiture, including the legal, professional, advisory and consulting fees related to its completion;

• challenges in separating the Commercial Business, including separating the operations, shared services, products, infrastructure and personnel, as well as the assets and liabilities, potentially resulting in delays or additional costs in completing the Divestiture;

• disruptions to and potential adverse impacts on relationships with third-party providers, suppliers, dealers, customers and others with whom we do business that may conclude that our product and service offerings are insufficient to satisfy their requirements from doing or continuing to do business with us;

• loss of synergies between CSB and Commercial;

• uncertainty among key employees concerning their future with ADT, leading to potential distraction or attrition, as well as potential difficulty in attracting and retaining prospective employees in the future; and

• exposure to unanticipated ongoing obligations and liabilities, including as a result of any indemnification obligations.

Failure to complete the Divestiture could adversely affect our results of operations and financial condition.

There is no assurance that the Divestiture will close as expected or at all.

Consummation of the Divestiture is subject to various customary closing conditions, including regulatory approvals.

We cannot predict with certainty whether and when any of these conditions will be satisfied.

If we are unable to complete the Divestiture as expected, we could face significant negative consequences, including negative reactions from the financial markets as well as challenges in achieving our debt reduction goals, which could adversely affect our credit ratings, and cause difficulty executing on our strategic priorities, objectives, goals, and medium-term target framework.

We have also incurred significant costs, including the diversion of management resources, for which we will have received little or no benefit if the Divestiture does not close.

Even if we complete the Divestiture, we may be unable to do so on the timeline we currently expect and may not achieve some or all of the strategic and financial benefits that we expect to achieve from the Divestiture which could have a material adverse effect on our financial condition and results of operations.

We believe the Divestiture will place us in a better position to prioritize investments in CSB and Solar that we intend to drive profitable, capital-efficient revenue growth for the long-term.

Upon completion of the Divestiture, we plan to use the net after-tax cash proceeds of approximately $1.5 billion for significant debt reduction.

There may, however, be a delay in our ability to use some or all of the proceeds to repay a portion of our indebtedness which could have a material adverse effect on our financial condition and may adversely affect our credit ratings and cost of capital, as well as our ability to execute on our strategic priorities, objectives, goals, and medium-term target framework.

Moreover, we may not be able to achieve the other anticipated benefits of the Divestiture, which could have a material adverse impact on our business, financial condition, results of operations, and cash flows.

Risks Related to the Commercial Divestiture

We may not achieve some or all of the strategic and financial benefits that we expect to achieve from the Divestiture which could have a material adverse effect on our financial condition and results of operations.

Although we believe the Commercial Divestiture will place us in a better position to prioritize investments in CSB and make strategic decisions with respect to Solar that we intend to drive profitable, capital-efficient revenue growth for the long-term, there can be no assurance that we will achieve such benefits.

We are using the net after-tax cash proceeds of approximately $1.5 billion for significant debt reduction and have already used $1.3 billion of the net proceeds for debt reduction.

There may, however, be a delay in our ability to use the remaining proceeds to repay a portion of our indebtedness which could have a material adverse effect on our financial condition and may adversely affect our credit ratings and cost of capital, as well as our ability to execute on our strategic priorities, objectives, goals, and medium-term target framework.

Moreover, we may not be able to achieve the other anticipated benefits of the Commercial Divestiture, which could have a material adverse impact on our business, financial condition, results of operations, and cash flows.

The anticipated benefits are based on a number of assumptions, some of which may prove incorrect, and could be affected by factors beyond our control, including, without limitation, general economic conditions, increased operating costs, regulatory developments and other risks described in these risk factors and within Item IA of Part I of our Amended 2022 Annual Report.

The Divestiture increases the risk of damage to our brand and reputation which may materially adversely affect our financial condition and results of operations.

In connection with the Divestiture, we have agreed to provide transitional services to GTCR for a period of up to 24 months and to license our ADT Commercial brand for 12 months.

The Commercial Divestiture increases the risk of damage to our brand and reputation which may materially adversely affect our financial condition and results of operations.

In connection with the Commercial Divestiture, we have agreed to provide transitional services to GTCR for a period of up to 24 months and to license our ADT Commercial brand for 12 months.

These arrangements allow for the use of our trademarks, certain intellectual property and limited use of the ADT Commercial brand, which may cause us to incur unanticipated costs and liabilities and which could have a material adverse effect on our business, financial condition and results of operations.

Additionally, GTCR’s ability to use the ADT Commercial brand may increase the risk of damage to the brand for our remaining businesses, which could negatively impact our reputation, results of operations and financial condition.

ADT will be a less diversified business following the Divestiture, which may adversely affect ADT’s results of operations and financial condition.

ADT currently has three business segments, CSB, Commercial, and Solar.

The Divestiture will result in ADT being a smaller, less diversified company more focused on consumers, potentially making ADT more vulnerable to changing market, regulatory and economic conditions following the Divestiture, particularly those affecting consumers and small businesses.

Macroeconomic headwinds or changes in consumer preferences could have a greater impact on our business following the Divestiture which could have a material adverse effect on our business, results of operations and financial condition.

ADT will be a less diversified business following the Commercial Divestiture, which may adversely affect ADT’s results of operations and financial condition.

Prior to the Commercial Divestiture, ADT had three business segments, CSB, Commercial, and Solar.

The Commercial Divestiture resulted in ADT being a smaller, less diversified company more focused on consumers, potentially making ADT more vulnerable to changing market, regulatory, and economic conditions following the Commercial Divestiture, particularly those affecting consumers and small businesses.

Additionally, ADT has announced it is taking a series of steps to rationalize its Solar business, including exiting underperforming branches and streamlining the cost structure.

A smaller Solar business increases ADT’s dependence on CSB, and any trends or uncertainties affecting the CSB segment will more directly affect ADT’s results of operations and financial condition in the future.

Macroeconomic headwinds or changes in consumer preferences could have a greater impact on our business following the Commercial Divestiture which could have a material adverse effect on our business, results of operations, and financial condition.

Risks Related to the Rationalization of the ADT Solar Business

ADT announced plans to rationalize the ADT Solar business, which includes exiting underperforming branches and streamlining ADT Solar’s cost structure, which are subject to uncertainties and risks that may materially adversely affect our financial condition and results of operations.

On November 2, 2023, we announced a series of steps to rationalize the ADT Solar business, significantly reducing the number of ADT Solar branches in light of continued operational challenges and underperformance of operating results relative to expectations.

In connection with the ADT Solar rationalization, we anticipate incurring severance and other costs, which are not expected to be material.

The ADT Solar rationalization activity may result in business disruptions and may not produce the full efficiency and cost reduction benefits anticipated.

Furthermore, the benefits may be realized later than expected and the cost of implementing these measures may be greater than anticipated.

If these measures are not successful, we may need to undertake additional cost reduction efforts with respect to ADT Solar, including, among other things, a further reduction of branches or ceasing operations, which could result in future charges.

Moreover, the ADT Solar rationalization plan may cause business disruptions with customers, which could make our brand less attractive to consumers, and ADT Solar may not be more efficient or effective than prior to the implementation of the rationalization plan.

The ADT Solar rationalization activities, including the related charges and the impact of the related workforce reduction, which may include potential legal claims by impacted employees, could have a material adverse effect on our business, operating results and financial condition.

The ADT Solar rationalization activities may also involve continued financial involvement in the discontinued branches, such as by causing us to continue to incur expenses to maintain services for completed installations and to complete those installations which have not yet been completed, or through continuing guarantees, indemnities or other financial obligations, such as a requirement by lenders that we repay outstanding loan amounts for jobs that have not achieved permission to operate in a timely manner, both within and outside of the markets impacted.

The incurrence of any such cost or action could have a material adverse effect on our business, financial condition, results of operations and cash flows.

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 1A. Risk Factors