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Item 7. Management’s Discussion and Analysis

2024-02-28 compared with 2023-02-28 · 323 added, 344 removed, 300 unchanged (69% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes thereto included elsewhere in this Annual Report.

This section is intended to (i) provide material information relevant to the assessment of our results of operations and cash flows;

(ii) enhance the understanding of our financial condition, changes in financial condition, and results of operations;

and (iii) discuss material events and uncertainties known to management that are reasonably likely to cause reported financial information not to be necessarily indicative of future performance or of future financial condition.

Included below are year-over-year comparisons between 2022 and 2021.

For information on year-over-year comparisons between 2021 and 2020, refer to Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Annual Report for the year ended December 31, 2021, which was filed with the SEC on March 1, 2022.

The following discussion and analysis contains forward-looking statements about our business, operations, and financial performance based on current plans and estimates involving risks, uncertainties, and assumptions, which could differ materially from actual results.

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

• Introduction

• Business and Basis of Presentation

6 unchanged sentences

• Accounting Pronouncements

The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes thereto included elsewhere in this Annual Report.

This section is intended to (i) provide material information relevant to the assessment of our results of operations and cash flows;

(ii) enhance the understanding of our financial condition, changes in financial condition, and results of operations;

Included below are year-over-year comparisons between 2023 and 2022.

The Company is including a year-over-year comparison between 2022 and 2021, under such headings, for selling, general, and administrative expenses and Adjusted EBITDA, which were impacted by the Commercial Divestiture and classification of the Commercial Business as a discontinued

The classification of the Commercial Business as a discontinued operation did not impact the remaining discussions on results of operations.

Such discussions generally included analysis specific to activities within a certain business segment, and therefore, the explanations did not materially change as a result of such classification.

For further information on year-over-year comparisons between 2022 and 2021 not impacted by the Commercial Divestiture, refer to Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Amended 2022 Annual Report, which was filed with the SEC on July 27, 2023.

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

Unless otherwise noted, the discussions below relate to the Company’s continuing operations.

BUSINESS AND BASIS OF PRESENTATION

is a leading provider of security, interactive, and smart home solutions serving residential, small business, and commercial customers in the U.S.

Since the acquisition of ADT Solar in December 2021, we also provide residential solar and energy storage solutions.

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

is a leading provider of security, interactive, and smart home solutions serving residential and small business customers in the U.S.

Our mission is to empower people to protect and connect what matters most with safe, smart, and sustainable solutions, delivered through innovative offerings, unrivaled safety, and a premium experience because we believe that everyone deserves to feel safe.

As discussed below, on October 2, 2023, we completed the divestiture of our Commercial Business, which provided security and other solutions to commercial customers;

and in January 2024, we announced our plans to exit the residential solar business.

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

dollars in accordance with GAAP, excluding our Non-GAAP measures, and includes the accounts of ADT Inc.

dollars and in accordance with GAAP, excluding our Non-GAAP measures, and includes the accounts of ADT Inc.

and its subsidiaries.

All intercompany transactions have been eliminated.

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

CSB, Commercial, and Solar.

Since the Commercial Divestiture, we report current and historical financial and operating information for our two remaining segments, CSB and Solar.

For a more detailed discussion of our business, segments, and basis of presentation, refer to Item 1 “Business” and Note 1 “Description of Business and Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements in Item 15 “Exhibit and Financial Statement Schedules.”

FACTORS AFFECTING OPERATING RESULTS

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

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

As of December 31, 2023, we served approximately 6.4 million security monitoring service subscribers.

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

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

For our subscriber-based offerings, our results are impacted by the mix of transactions under a Company-owned equipment model versus a customer-owned equipment model (referred to as outright sales), as there are different accounting treatments applicable to each model, as discussed in Note 2 “Revenue and Receivables.” Previous changes to our equipment ownership model impacted results during 2021 and 2020, and substantially all new CSB transactions since March 2021 take place under a Company-owned model.

As we continue to build our partnership with Google, introduce new or enhance current offerings, and refine our go-to-market approach, including, for example, transitioning our DIY/self setup business to an outright sales model, we expect to see a shift toward an increasing proportion of outright sales transactions in our CSB and Commercial segments, which will impact results in future periods when these changes occur.

Our ability to increase our average prices for individual customers depends on a number of factors, including the type and complexity of service, the quality of our service, the introduction of additional features and offerings that increase the value to the customer, and the competitive and macroeconomic environments in which we operate.

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

Each year, a portion of our recurring customer base can be expected to cancel or may choose not to renew service for a variety of reasons such as relocation, loss to competition, cost, or service issues.

We experienced a lower volume of customer relocations during 2020 primarily as a result of the COVID-19 Pandemic, followed by a slight increase during 2021.

During 2022, we saw favorable trends in gross customer revenue attrition primarily as a result of a lower volume of customer relocations, partially offset by an increase in non-payment disconnects.

Generally, a significant upfront investment is required to acquire new subscribers, that in turn provide ongoing and predictable recurring revenue.

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

Our CSB results are impacted by the mix of transactions under a Company-owned equipment model versus a customer-owned equipment model (referred to as outright sales), as there are different accounting treatments applicable to each model, as well as the mix, price, and type of offerings sold (see Note 2 “Revenue and Receivables”).

Since March 2021, substantially all new professionally installed CSB transactions have taken place under a Company-owned model.

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

We have experienced, and expect to continue to experience, an increase in the proportion of ADT self set-up customers, which are considered outright sales and typically have lower monthly recurring fees than our professional installations, but we believe will allow us to grow our subscriber base through access to the fast-growing do-it-yourself (“DIY”) market.

The prices we are able to charge for our products and services are impacted by the type, quality, and complexity of the offerings that we provide;

the introduction of additional features and offerings that increase value to the customer;

and the competitive and macroeconomic environments in which we operate.

Demand for our offerings may be impacted by the overall economic conditions in the geographies in which we operate, the price and quality of our offerings compared to those of our competitors, as well as changes in competition such as from the acquisition or disposition of similar businesses by us or our competitors.

Growth in our CSB segment can be impacted by the

overall state of the housing market, the perceived threat of crime, the occurrence of significant life events such as the birth of a child or opening of a new business, or the availability of financial incentives provided by insurance carriers.

New customer additions and customer attrition have a direct impact on our financial results, including revenue, operating income, and cash flows.

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

Relocations are sensitive to changes in the residential housing market, and fewer relocations generally lead to improvements in gross customer revenue attrition but less new customer additions.

Additionally, non-payment disconnects generally increase in a weaker macroeconomic environment.

For example, during 2022 and 2023, we experienced fewer relocation disconnects and higher non-pay disconnects largely related to housing market conditions and the weaker macroeconomic environment.

As a result of continued changes in the macroeconomic environment, we are currently unable to determine whether there will be any ongoing or further impacts on these trends, and we may continue to experience fluctuations in these or other trends in the future.

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

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

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

• Growth in our commercial customer base can be impacted by the rate at which new businesses begin operations or existing businesses grow, as well as applicable building codes and insurance policies.

• Growth in our solar customer base can be impacted by the availability of certain rebates, tax credits, and other financial incentives;

the availability and costs of consumer financing options;

and traditional energy prices and grid reliability.

We may also be impacted by seasonality and weather-related incidents or natural disasters.

Hurricanes Fiona and Ian during the third quarter of 2022 and winter storms during the fourth quarter of 2022 impacted certain areas in which we operate resulting in power outages and service disruptions to certain of our customers.

We did not experience any material impacts from these incidents.

We believe advancements in technology, younger generations of consumers, and shifts to de-urbanization have increased consumer interest in automated security and other mobile technology applications;

and we have made significant progress toward increasing the variety of our offerings to accommodate these changing interests.

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

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

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

Factors that may impact the overall costs required to serve our current and potential customers include (i) offering a wider variety of products and services;

Seasonality and weather-related incidents or natural disasters such as hurricanes and winter storms may impact certain areas in which we operate resulting in power outages and service disruptions to certain of our customers.

Depending on the severity and nature of the event, material impacts may occur as a result of these incidents.

We have made significant progress toward increasing the variety of our offerings to accommodate increased consumer interest in automated security and other mobile technology applications due to advancements in technology, younger generations of consumers, and shifts to de-urbanization.

Advances in technology are also helping us to improve our offerings and reduce certain costs.

For example, our Virtual Assistance Program provides our customers the ability to troubleshoot and resolve certain service issues, as well as other functions, through a live video stream with our skilled technicians.

This provides customers with more options for receiving certain services that best fit their lifestyles while reducing our costs and eliminating thousands of vehicle trips each day.

We may experience an increase in costs associated with factors, including but not limited to (i) offering a wider variety of products and services;

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

(iii) replacing or upgrading certain system components due to technological advancements or otherwise;

(iii) replacing or upgrading certain system components due to technological advancements, cybersecurity upgrades, or otherwise;

(iv) supply chain disruptions;

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

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

Changes in interest rates or terms from third-party lenders or our other financing partners, including those that provide loan products to our Solar customers, are impacted by factors such as increases in the benchmark interest rate.

As part of our response to changes or pressures in the macroeconomic environment, we may evaluate cost saving opportunities such as reducing headcount or our physical facilities footprint when appropriate.

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

Changes in interest rates or terms from third-party lenders or our other financing partners are impacted by factors such as increases in the benchmark interest rate or other developments in the financial markets.

We aim to continuously evaluate and respond to changes in the above to drive efficiencies and meet customer demands.

As part of our response to changes or pressures in the current macroeconomic environment, we have been evaluating, and continue to evaluate, cost-saving opportunities such as reducing headcount or our physical facilities footprint when appropriate, and reducing non-essential spend.

While we have experienced some increase in costs as a result of inflation, we have, for the most part, been able to offset the rising costs through price increases to our customers, as well as cost-saving opportunities.

For example, in our Solar business, we were able to drive efficiencies in the current year through job eliminations, intentional slowed hiring, and organic turnover.

In addition, as a portion of our employees continue to work from home, and with the expansion and success of our Virtual Assistance Program, we are evaluating the changing needs of our physical locations, while keeping our customers’ needs and safety a top priority.

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

Strategic Partnerships and Acquisitions

Google Commercial Agreement

In July 2020, we entered into the Google Commercial Agreement, pursuant to which Google has agreed to supply us with certain Google Devices and Services for sale to our customers.

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

Further, subject to certain carve-outs, we have agreed to exclusively sell Google Devices and Services to our customers.

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

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

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

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

During the first quarter of 2023, we introduced our own new ADT+ app for our self setup line of DIY smart home security products, including Google Nest offerings, which we expect to introduce for professional installations by the end of 2023.

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

Commercial Divestiture

As discussed in Note 1 “Description of Business and Summary of Significant Accounting Policies” and Note 5 “Divestitures,” on October 2, 2023, GTCR acquired all of the issued and outstanding equity interests of the entities comprising our Commercial Business for a total purchase price of approximately $1,613 million in cash, subject to certain customary adjustments as set forth in the Commercial Purchase Agreement.

We received net proceeds of approximately $1,585 million, excluding transaction costs of $22 million, and recognized a gain on the sale of approximately $630 million, which is reflected in income (loss) from discontinued operations, net of tax.

We used the majority of the net proceeds from the Commercial Divestiture for debt reduction (see Note 8 “Debt”).

The results of the Commercial Business through the date of sale are reported as a discontinued operation for current and historical periods.

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

Gross customer revenue attrition and recurring monthly revenue (as defined and discussed below) have been presented for the current period, and recast for prior periods, to reflect only the CSB segment.

During the fourth quarter of 2023, we began recording income associated with the Commercial TSA, which is recognized in other income (expense) and was not material during 2023.

However, the Commercial TSA is expected to be material in future periods during the transitional period of up to 24 months after the closing of the Commercial Divestiture.

During 2023, we utilized a significant portion of our net operating losses (“NOLs”) to offset the gain generated from the sale of the Commercial Business.

As of December 31, 2023, we expect to utilize our remaining NOLs during 2024.

The Company expects to become a federal cash taxpayer in 2024 or 2025 depending on future losses generated by the business, specifically with regard to the closure of the Solar business.

Unless otherwise noted, our results of operations discussed below relate to continuing operations and will be impacted by the Commercial Divestiture.

ADT Solar Exit

As previously disclosed, in November 2023, we announced a plan to streamline the solar business to focus on the top performing markets and rationalize the overhead and infrastructure of the business.

As part of this plan, we closed a significant number of branches that operate the solar business along with making associated headcount reductions.

On January 19, 2024, after a strategic review of the business and continued macroeconomic and industry pressures, the Company’s Board of Directors approved a plan to fully exit the residential solar business, which may include the transition of components of the business to other parties.

The ADT Solar Exit is expected to be completed during 2024.

As of December 31, 2023, charges and cash expenditures related to the ADT Solar Exit have not been material.

In connection with the ADT Solar Exit, we currently expect to incur additional aggregate charges of approximately $70 million - $110 million, related to (a) employee separation costs of approximately $7 million - $10 million, (b) long-lived asset impairments and write-off of deferred implementation costs associated with cloud computing arrangements of approximately $16 million - $20 million, (c) contract termination charges of approximately $6 million - $10 million, (d) the write-down and disposition of inventory on hand of approximately $15 million - $22 million, and (e) other charges of approximately $26 million - $48 million, which primarily relates to the impact associated with the disposition of the existing installation pipeline.

We expect to incur future aggregate cash expenditures associated with the ADT Solar Exit of approximately $50 million - $70 million.

The ADT Solar Exit is expected to be completed during 2024.

The estimated charges and cash expenditures resulting from these actions could change materially, including that the Company may incur additional charges and cash expenditures due to various factors including unknown or unforeseen costs as part of these actions.

Google Partnership Update

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

customer acquisition;

training of our employees on the sales, installation, customer service, and maintenance of the product and service offerings;

and technology updates for products included in such offerings.

employee training;

and technology updates.

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

In August 2022, we amended the Google Commercial Agreement, pursuant to which Google has agreed to commit an additional $150 million to further fund growth, data and insights, product innovation and technology advancements, customer acquisition, and marketing, as mutually agreed to by us and Google.

In August 2022, we amended the Google Commercial Agreement, pursuant to which Google has agreed to commit an additional $150 million to further fund, as mutually agreed to by us and Google, growth, data and insights, product innovation and technology advancements, customer acquisition, and marketing.

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

ADT Solar Acquisition

In December 2021, we acquired ADT Solar, a leading solar installer in the United States, for total consideration of approximately $750 million, which consisted of cash paid of $142 million, net of cash acquired, and approximately 75 million shares of our Common Stock with a fair value of $569 million at closing.

This acquisition establishes ADT in the residential solar market and leverages our brand awareness and trust among consumers to provide solar and energy storage solutions, energy efficiency upgrades, and roofing services to consumers.

Refer to Note 4 “Acquisitions and Disposition” in the Notes to Consolidated Financial Statements for further information.

Canopy Investment

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

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

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

State Farm Strategic Investment and Tender Offer

On September 5, 2022, we entered into the State Farm Securities Purchase Agreement, pursuant to which we agreed to issue and sell in a private placement to State Farm 133,333,333 shares of our Common Stock ( State Farm Shares ) at a per share price of $9.00 for an aggregate purchase price of $1.2 billion.

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

Concurrently with the execution of the State Farm Securities Purchase Agreement, (i) Apollo delivered to us the Apollo Support Agreement, pursuant to which Apollo agreed to collectively tender (and not withdraw) no fewer than 133,333,333 shares of Common Stock in the Tender Offer and (ii) Google delivered to us a Support Agreement, pursuant to which Google agreed to not convert and tender any of its shares of Class B Common Stock.

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

The Tender Offer expired on October 20, 2022 (the “Tender Expiration Date”), and on October 26, 2022, we used proceeds from the State Farm Strategic Investment to repurchase an aggregate of 133,333,333 shares of our Common Stock at a purchase price of $9.00 per share, subject to the terms and conditions described in the Offer to Purchase dated September 12, 2022.

The Tender Shares were subject to the “odd lot” priority and proration provisions described in the Offer to Purchase as the Tender Offer was substantially over-subscribed.

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

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

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

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

Other Events and Updates

Radio Conversion Program

During 2019, we commenced a program to replace the 3G and CDMA cellular equipment used in many of our security systems as a result of the cellular network providers retiring their 3G and CDMA networks beginning in 2022.

For those customers who did not transition prior to or have not transitioned since the applicable network sunset, the loss of signal to our security systems and certain services we provide may impact our ability to bill and/or collect from these customers in the future and may impact our attrition, which we cannot estimate until some time after the retirements have occurred.

From inception of this program through December 31, 2022, we incurred approximately $292 million of net radio conversion costs, the majority of which was incurred in 2021 prior to the network sunset dates.

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

COVID-19 Pandemic Update

The COVID-19 Pandemic, including recent variants, caused certain notable impacts on general economic conditions, including temporary and permanent closures of many businesses, increased governmental regulations, supply chain disruptions, and changes in consumer spending and other habits.

While we have incurred additional costs associated with providing personal protective equipment for our employees and in response to supply chain constraints, as well as rising costs due to inflation, we believe our recurring revenue and highly variable subscriber acquisition cost model continues to provide a solid financial foundation for strong cash flow generation.

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

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

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

Tax Legislation

During 2023, we were reimbursed $40 million for certain joint marketing expenses we incurred.

In December 2023, the Company and Google entered into the Google Cloud Agreement Addendum, pursuant to which Google has agreed to provide certain credits, discounts, and other incentives for use of the Google Cloud Platform to the Company, and the Company has committed to purchasing $200 million of Google Cloud Platform services over seven years (through December 2030), as discussed in Note 14 “Commitments and Contingencies” in the Notes to Consolidated Financial Statements.

Additionally, during 2023, we launched our proprietary ADT+ app for our self setup line of DIY smart home security products, including Google Nest offerings.

During the fourth quarter of 2023, we began our phased rollout of our ADT+ app for professional installation along with a new interactive and hardware lineup.

Federal Tax Legislation

Certain changes to U.S.

federal tax law included in the Tax Cuts and Jobs Act of 2017 had a delayed effective date and have taken effect for 2022.

Under IRC Section 163(j), the limitation on net business interest expense deductions will no longer be increased by deductions for depreciation, amortization, or depletion.

Under IRC Section 174, specified research and experimentation expenditures must now be capitalized and amortized.

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

The IRA was signed into law in August 2022.

The IRA, among other provisions, implements (i) a 15% corporate alternative minimum tax (the “CAMT”) on book income for corporations whose annual adjusted financial statement income during the most recently completed three-year period exceeds $1 billion, (ii) a 1% excise tax on net stock repurchases, and (iii) several tax incentives to promote clean energy including an extension of the ITC.

Both the CAMT and the excise tax provisions are effective for tax years beginning after December 31, 2022.

We do not anticipate any material impacts in the short-term at this time.

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

federal income taxes.

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

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

federal tax law included in the Tax Cuts and Jobs Act of 2017 had a delayed effective date until 2022.

Under IRC Section 163(j), the limitation on net business interest expense deductions are no longer increased by deductions for depreciation, amortization, or depletion.

Under IRC Section 174, specified research and experimentation expenditures are now

capitalized and amortized.

These items have resulted in increased taxable income and an acceleration of our net operating loss utilization.

Potential for Future Valuation Allowance

As of December 31, 2022, we had a significant amount of deferred tax assets, against which we take valuation allowances that relate to the uncertainty of our ability to utilize these deferred tax assets in future periods.

We periodically review matters, including pending and enacted legislation such as the updates described above, that can influence our decision as to whether or not a valuation allowance is appropriate;

and we consider whether any developments to such legislation, together with other factors, require a valuation allowance.

We believe that our deferred tax assets for disallowed interest under IRC Section 163(j) will continue to grow from their current level.

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

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

The valuation allowance for deferred tax assets relates to the uncertainty of the utilization of certain U.S.

federal and state deferred tax assets.

In evaluating the Company’s ability to recover its deferred tax assets, the Company considers all available positive and negative evidence, including enacted legislation such as the updates described above, which impact our assessment of whether a valuation allowance is needed.

We believe that our deferred tax asset for disallowed interest under IRC Section 163(j) will continue to grow from its current level.

There is currently significant uncertainty in the matters we consider when evaluating our valuation allowance needs.

Any material change to our valuation allowance in subsequent periods could materially and adversely impact our operating results.

Other Updates

State Farm Partnership

Beginning in 2023, certain State Farm customers were able to receive ADT home security products and professional monitoring at a reduced cost as part of the partnership between ADT and State Farm.

In addition, through this program, ADT has access to certain State Farm customers, which provide opportunities to reach additional markets.

As of December 31, 2023, the State Farm partnership operated in 13 states in the U.S.

During 2023, we used approximately $9 million of the Opportunity Fund for project initiatives.

Refer to Note 11 “Equity” in the Notes to Consolidated Financial Statements for further information.

Radio Conversion Program

The program was completed in 2023, and we incurred a total of $276 million net radio conversion costs throughout the program, the majority of which was incurred in 2021.

This impact has not been, and is not expected to be, material.

KEY PERFORMANCE INDICATORS

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Certain operating metrics are approximated, as there may be variations to reported results due to certain adjustments we might make in connection with the integration over several periods of acquired companies that calculated these metrics differently or periodic reassessments and refinements in the ordinary course of business, including changes due to system conversions or historical methodology differences in legacy systems.

RMR is generated by contractual recurring fees for monitoring and other recurring services provided to our customers.

RMR is generated by contractual recurring fees for monitoring and other recurring services provided to our CSB customers, including contracts monitored but not owned.

We use RMR to evaluate our overall sales, installation, and retention performance.

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Gross Customer Revenue Attrition

Gross customer revenue attrition is defined as RMR lost as a result of customer attrition, net of dealer charge-backs and reinstated customers, excluding contracts monitored but not owned and DIY customers.

Customer sites are considered canceled when all services are terminated.

Gross customer revenue attrition for our CSB segment is defined as RMR lost as a result of customer attrition, net of dealer charge-backs and reinstated customers, excluding contracts monitored but not owned and self-setup/DIY customers.

sites are considered canceled when all services are terminated.

Dealer charge-backs represent customer cancellations charged back to the dealers because the customer canceled service during the charge-back period, which is generally thirteen months.

Gross customer revenue attrition is calculated on a trailing twelve-month basis, the numerator of which is the RMR lost during the period due to attrition, net of dealer charge-backs and reinstated customers, and the denominator of which is total annualized RMR based on an average of RMR under contract at the beginning of each month during the period, in each case, excluding contracts monitored but not owned and DIY customers.

We use gross customer revenue attrition to evaluate our retention and customer satisfaction performance, as well as evaluate subscriber trends by vintage year.

We use gross customer revenue attrition to evaluate our CSB retention and customer satisfaction performance, as well as evaluate subscriber trends by vintage year.

Additionally, we believe the presentation of gross customer revenue attrition is useful to investors as it provides a means to evaluate drivers of customer attrition and the impact of retention initiatives.

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Adjusted EBITDA is a non-GAAP measure.

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

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

RESULTS OF OPERATIONS

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2023 2022 2021 2023 vs.

2021 2021 vs.

Monitoring and related services $ 4,178,998 $ 4,053,048 $ 3,882,290 $ 125,950 $ 170,758

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Other income (expense) 11,958 (57,568) 8,313 69,526 (65,881)

Income (loss) before income taxes and equity in net earnings (losses) of equity method investee 237,403 (471,189) (778,919) 708,592 307,730

Income (loss) from continuing operations before income taxes and equity in net earnings (losses) of equity method investee (66,527) 149,146 (475,834) (215,673) 624,980

Income tax benefit (expense) (4,585) (37,682) 131,657 33,097 (169,339)

Income (loss) before equity in net earnings (losses) of equity method investee 177,219 (340,820) (632,193) 518,039 291,373

Income (loss) from continuing operations before equity in net earnings (losses) of equity method investee (71,112) 111,464 (344,177) (182,576) 455,641

Equity in net earnings (losses) of equity method investee 6,572 (4,601) — 11,173 (4,601)

Income (loss) from continuing operations (64,540) 106,863 (344,177) (171,403) 451,040

Income (loss) from discontinued operations, net of tax 527,549 25,800 3,357 501,749 22,443

Net income (loss) $ 463,009 $ 132,663 $ (340,820) $ 330,346 $ 473,483

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N/A—Not applicable.

2023 Compared to 2022

Monitoring and related services revenue (“M&S Revenue”) primarily comprises revenue generated from providing recurring monthly monitoring and other services, as well as revenue from time and materials billings.

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Solar installation, product, and other revenue comprises revenue from the sale and installation of our solar systems and energy-storage solutions.

Years Ended December 31, $ Change

(in thousands)

2022 2021 2020 2022 vs.

2021 2021 vs.

Monitoring and related services $ 4,050,019 $ 3,873,285 $ 3,760,614 $ 176,734 $ 112,671

Security installation, product, and other 328,786 272,743 564,575 56,043 (291,832)

Total CSB 4,378,805 4,146,028 4,325,189 232,777 (179,161)

Monitoring and related services 539,246 474,428 426,373 64,818 48,055

Security installation, product, and other 690,833 639,304 563,225 51,529 76,079

Total Commercial 1,230,079 1,113,732 989,598 116,347 124,134

Revenue, as compared to the prior period, primarily reflects:

• CSB M&S Revenue :

higher recurring revenue of $127 million primarily driven by an increase in average prices.

• CSB Security installation, product, and other :

(i) an increase in installation revenue of $78 million primarily driven by a higher volume of outright sales transactions and higher installation revenue per unit associated with new customers under the outright sales transaction model, as well as (ii) an increase of $67 million in the amortization of deferred subscriber acquisition revenue associated with customers under a Company-owned model.

• Solar installation, product, and other:

Total Solar 786,426 47,351 — 739,075 47,351

Total revenue $ 6,395,310 $ 5,307,111 $ 5,314,787 $ 1,088,199 $ (7,676)

During 2022, the increases in CSB revenue included:

• M&S Revenue :

(i) higher recurring revenue of $156 million, reflecting approximately $100 million related to the estimated impact from an increase in average prices and approximately $70 million related to the estimated impact from an increase in subscribers, partially offset by a decrease of $14 million in other revenue primarily due to radio conversion revenue, as well as (ii) higher revenue of $21 million primarily related to time and materials billings.

• Security installation, product, and other :

an increase in the amortization of deferred subscriber acquisition revenue of $71 million as a result of a higher population of existing customers under a Company-owned model as compared to the prior year, partially offset by a decrease in installation revenue of $15 million related to a lower volume of outright sales transactions primarily as a result of our transition to a predominately Company-owned model in the first quarter of 2021.

During 2022, the increases in Commercial revenue included:

• M&S Revenue :

higher revenue from time and materials billings of $43 million driven by higher revenue per service call, as well as higher recurring revenue of $22 million driven by improvements in average revenue per subscriber.

• Security installation, product, and other :

higher installation revenue related to strong sales performance, despite supply chain delays.

The increase in Solar revenue during 2022, as compared to the prior year period, was primarily due to a full year compared to a partial month of revenue from Solar installations, as a result of the ADT Solar Acquisition in December 2021.

During 2022 and 2021, solar installation, product, and other revenue included approximately $30 million and $10 million, respectively, from the amortization of purchase accounting adjustments related to a customer backlog intangible asset.

RMR and Gross Customer Revenue Attrition:

As of December 31, 2022, our ending RMR balance was $374 million, up $15 million or 4% compared to the prior year, primarily driven by our CSB segment and included the following:

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

• an increase in our subscriber base of 1% primarily due to subscriber growth initiatives and improvements in customer retention.

Gross customer revenue attrition was 12.5% as of December 31, 2022 compared to 13.1% as of December 31, 2021.

The improvement in gross customer revenue attrition was driven by a decrease in relocations, partially offset by higher non-payment disconnects.

fewer sales and installations as a result of impacts from macroeconomic conditions, including higher interest rates.

The increase in RMR, as compared to the prior period, was primarily due to an increase in average prices on new and existing subscribers.

Gross customer revenue attrition, as compared to the prior period, remained relatively flat, reflecting higher non-payment and other disconnects, primarily offset by a decrease in relocations.

Cost of Revenue

Monitoring and related services costs primarily comprises field service and call center costs incurred from providing recurring monthly monitoring and other services in our CSB and Commercial segments.

Monitoring and related services costs (“M&S Costs”) primarily comprises field service and call center costs incurred from providing recurring monthly monitoring and other services.

Security and solar installation, product, and other costs comprise costs incurred from the installation of our security and solar systems, respectively.

Years Ended December 31, $ Change

(in thousands)

2022 2021 2020 2022 vs.

2021 2021 vs.

Monitoring and related services $ 593,088 $ 620,220 $ 538,176 $ (27,132) $ 82,044

Security installation, product, and other 97,549 105,001 278,413 (7,452) (173,412)

Total CSB 690,637 725,221 816,589 (34,584) (91,368)

Monitoring and related services 324,960 292,728 251,730 32,232 40,998

Security installation, product, and other 522,541 497,466 448,209 25,075 49,257

Total Commercial 847,501 790,194 699,939 57,307 90,255

Cost of revenue, as compared to the prior period, primarily reflects:

• CSB Security installation, product, and other:

an increase in installation costs due to a higher volume of outright sales transactions, partially offset by a lower volume of in-person service tickets as a result of our Virtual Assistance Program.

• Solar installation, product, and other:

Total Solar 501,710 34,758 — 466,952 34,758

Total cost of revenue $ 2,039,848 $ 1,550,173 $ 1,516,528 $ 489,675 $ 33,645

During 2022, the decrease in CSB monitoring and related services costs was primarily attributable to a decrease in field service and call center costs driven by a lower volume of in-person service tickets as a result of our Virtual Assistance Program.

During 2022, the increase in Commercial cost of revenue was primarily attributable to an increase in installations and services performed in connection with strong sales performance as discussed above and reflects higher prices for materials, labor, and fuel.

The increase in total cost of revenue during 2022, as compared to the prior year period, was primarily due to a full year compared to a partial month as a result of the ADT Solar Acquisition in December 2021.

Selling, General, and Administrative Expenses:

During 2022, the increase in selling, general, and administrative expenses (“SG&A”), as compared to the prior year period, was primarily driven by incremental expenses of approximately $296 million as a result of the ADT Solar Acquisition in December 2021, as well as the following which exclude ADT Solar:

• an increase in the provision for credit losses of approximately $54 million, primarily in our CSB segment due to lower provision in the prior year associated with impacts from the COVID-19 Pandemic,

• an increase in selling costs of approximately $51 million, primarily in our CSB segment due to additional amortization of deferred subscriber acquisition costs, and

• an increase in general and administrative costs of approximately $40 million primarily in our CSB segment due to investments in our information technology infrastructure and other operational costs.

These increases were partially offset by:

• a decrease in radio conversion costs of $219 million, primarily due to a decrease in the number of conversions, and

• a decrease in advertising costs of approximately $82 million, primarily due to our efforts to optimize our advertising model.

Depreciation and Intangible Asset Amortization:

During 2022, the decrease in depreciation and intangible asset amortization, as compared to the prior year period, was primarily driven by a decrease in the amortization of customer relationship intangible assets of $320 million, which was primarily due to certain assets acquired as part of the ADT Acquisition becoming fully amortized beginning with the fourth quarter of 2021.

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

The decrease was partially offset by investments in subscriber growth resulting in:

• an increase in the amortization of customer contracts acquired under our authorized dealer program and from other third parties of $53 million, and

• an increase in the depreciation of subscriber system assets of $45 million.

a decrease in installation costs due to fewer sales and installations as discussed above.

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

The decrease in SG&A, as compared to the prior period, was primarily due to a decrease in our Solar segment of $123 million.

CSB remained relatively flat, and primarily included:

• a decrease of $39 million in general and administrative expenses, including a legal settlement earned in 2023,

• a decrease of $28 million in radio conversion costs due to the wind down of the replacement program,

• a decrease of $15 million in advertising costs, primarily due to the receipt of the Google Success Funds, partially offset by increased advertising spend and

• a decrease of $14 million in stock-based compensation as a result of grants that became fully vested in March 2023 associated with one-time grants from 2020, offset by:

• an increase of $50 million in the allowance for credit losses primarily related to residential customers and

• an increase of $47 million in selling costs primarily related to the amortization of deferred subscriber acquisition costs and commissions.

Depreciation and Intangible Asset Amortization (“D&A”)

The decrease in D&A was primarily driven by a decrease in the amortization of customer relationship intangible assets of $309 million, primarily related to certain assets acquired as part of the ADT Acquisition, which became fully amortized during the first quarter of 2023.

This decrease was partially offset by an increase in the amortization of customer contracts acquired under our authorized dealer program and from other third parties of $15 million, as well as an increase in the depreciation of subscriber system assets of $14 million.

Merger, Restructuring, Integration, and Other

Merger, restructuring, integration, and other varies year over year and generally represents certain direct and incremental costs resulting from acquisitions, integration costs as a result of those acquisitions, costs related to restructuring efforts, as well as fair value remeasurements and impairment charges on certain strategic investments.

During 2022, the decrease in merger, restructuring, integration, and other, as compared to the prior year period, primarily resulted from an $18 million impairment charge in CSB during 2021 due to lower than expected benefits from the developed technology intangible asset acquired during November 2020.

Merger, restructuring, integration, and other varies year over year and generally represents certain direct and incremental costs resulting from acquisitions, integration and optimization costs as a result of those acquisitions, costs related to restructuring efforts, as well as fair value remeasurements and impairment charges on certain strategic investments.

During 2023, the increase in merger, restructuring, integration, and other, as compared to the prior year period, was driven by increases in restructuring costs of $20 million primarily related to severance benefits and facility exits and third-party costs of $16 million primarily related to the strategic optimization of our Solar segment.

Goodwill Impairment

We recorded a goodwill impairment charge of $149 million associated with our Solar reporting unit during the third quarter of 2022.

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

During 2023 and 2022, we recorded goodwill impairment charges of $511 million and $201 million, respectively, associated with our Solar reporting unit.

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

Refer to Note 7 “Goodwill and Other Intangible Assets” and the section “—Critical Accounting Estimates” below for further discussion.

Interest Expense, net

During 2022, the decrease in interest expense, net, as compared to the prior year period, was driven by higher unrealized gains of $144 million, as well as a decrease of approximately $53 million related to settlements on our interest rate swaps partially offset by higher interest expense of $28 million on our First Lien Term Loan due 2026.

These changes were primarily due to fluctuations in the forward LIBOR.

During 2023, the increase in interest expense, net, as compared to the prior year period, was primarily driven by:

• a decrease in net unrealized gains of $324 million on our interest rate swaps not designated as cash flow hedges,

• higher interest expense of $59 million related to the term loan under our First Lien Credit Agreement, and

• $25 million of expense recorded during 2023 associated with the reclassification from AOCI of historical losses related to certain interest rate swaps as those cash flows are probable of not occurring as a result of the partial redemption of our First Lien Term Loan due 2026 in October 2023, partially offset by

• a decrease of $96 million related to settlements on our interest rate swaps.

Loss on Extinguishment of Debt

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

Loss on extinguishment of debt includes the payment of call and redemption premiums, the write-off of unamortized deferred financing costs and discounts, and certain other expenses associated with extinguishment of debt.

During 2023, loss on extinguishment of debt totaled $17 million and was primarily due to the write-off of unamortized discount and debt issuance costs associated with the partial redemption and refinancing of the First Lien Term Loan due 2026.

Other Income (Expense)

During 2022, in connection with the Tender Offer, we recorded a net loss of $63 million associated with the change in fair value of the Forward Contract.

In October 2022, upon closing of the State Farm Strategic Investment, the contingency associated with the Forward Contract was resolved, and the Forward Contract was settled upon closing of the Tender Offer.

During 2023, other income (expense) primarily included income from the Commercial TSA.

During 2022, other income (expense) primarily included a net loss of $63 million in connection with the Tender Offer as a result of the change in fair value of the Forward Contract.

Income Tax Benefit (Expense)

Our income tax expense during 2022 was $60 million, resulting in an effective tax rate for the period of 25.4%.

The effective tax rate primarily represents the federal statutory rate of 21.0%, a state statutory tax rate, net of federal benefits and legislative changes, of 2.8%, and unfavorable impacts related to the fair value adjustment of the Forward Contract, goodwill impairment, and other items, partially offset by favorable impacts from research and development credits, as well as uncertain tax positions and other items.

Our income tax benefit during 2021 was $130 million, resulting in an effective tax rate for the period of 27.7%.

The effective tax rate primarily represents the federal income tax rate of 21.0%, a state statutory tax rate, net of federal benefits and legislative changes, of 3.5%, and a 1.3% favorable impact related to the revaluation of our deferred tax liabilities in connection with our 2021 acquisitions.

Our income tax benefit (expense) during 2023 was $(5) million, resulting in an effective tax rate for the period of (6.9)%.

The effective tax rate primarily represents the federal statutory rate of 21.0%, state income taxes, net of federal benefits of (9.4)%, an 8.7% favorable impact related to a decrease in unrecognized tax benefits, an 8.0% favorable impact from the net impact of acquisitions and dispositions related to the revaluation of our net deferred tax liability, offset by a (9.5)% unfavorable impact from permanently non-deductible items, a (22.8)% unfavorable impact related to non-deductible solar goodwill impairment

charges, and a (5.9)% unfavorable impact related to non-deductible goodwill on dispositions, primarily related to the sale of the Commercial business.

Our income tax benefit (expense) during 2022 was $(38) million, resulting in an effective tax rate for the period of 25.3%.

The effective tax rate primarily represents the federal statutory rate of 21.0%, state income taxes, net of federal benefits of 6.8%, a (6.1)% favorable impact from a decrease in unrecognized tax benefits, a (5.7)% favorable impact from legislative changes, an (8.0)% favorable impact from federal credits, offset by a 13.3% unfavorable impact from permanently non-deductible items, primarily related to the fair value adjustment of the Forward Contract, and a 4.0% unfavorable impact from non-deductible solar goodwill impairment charges.

Refer to Note 10 “Income Taxes” for details on our effective tax rate.

Equity in Net Earnings (Losses) of Equity Method Investee

During the fourth quarter of 2023, we sold our shares in Canopy.

As a result, we received $21 million of recovered proceeds and recognized a net gain on sale of our equity method investment of $15 million.

Refer to Note 6 “Equity Method Investments” for further details.

2022 compared to 2021

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

The increase in SG&A, as compared to the prior period, was primarily driven by incremental expenses of $296 million as a result of the ADT Solar Acquisition in December 2021.

The decrease in CSB, as compared to the prior period, primarily included:

• a decrease in radio conversion costs of $211 million, primarily due to a decrease in the number of conversions and

• a decrease in advertising costs of $83 million, primarily due to our efforts to optimize our advertising model, partially offset by

• an increase in the provision for credit losses of $42 million, primarily due to lower provision in the prior year associated with impacts from the COVID-19 Pandemic,

• an increase in selling costs of $39 million, primarily due to additional amortization of deferred subscriber acquisition costs, and

• an increase in general and administrative costs of $36 million, primarily due to investments in our information technology infrastructure and other operational costs.

NON-GAAP MEASURES

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Further, we believe Adjusted EBITDA provides a meaningful measure of operating profitability because we use it for evaluating our business performance, making budgeting decisions, and comparing our performance against other peer companies using similar measures.

We define Adjusted EBITDA as net income (loss) adjusted for (i) interest;

We define Adjusted EBITDA as income (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;

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(viii) radio conversion costs, net;

and (ix) other income/gain or expense/loss items such as changes in fair value of certain financial instruments, impairment charges, financing and consent fees, or acquisition-related adjustments.

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

adjustments, or dispositions;

(x) impairment charges;

and (xi) other income/gain or expense/loss items such as changes in fair value of certain financial instruments or financing and consent fees.

There are material limitations to using Adjusted EBITDA.

Adjusted EBITDA does not take into account certain significant items, including depreciation and amortization, interest, taxes, and other adjustments which directly affect our net income (loss).

These limitations are best addressed by considering the economic effects of the excluded items independently and by considering Adjusted EBITDA in conjunction with net income (loss) as calculated in accordance with GAAP.

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

Adjusted EBITDA does not take into account certain significant items, including depreciation and amortization, interest, taxes, and other adjustments which directly affect our income (loss) from continuing operations.

These limitations are best addressed by considering the economic effects of the excluded items independently and by considering Adjusted EBITDA in conjunction with income (loss) from continuing operations as calculated in accordance with GAAP.

The table below reconciles Adjusted EBITDA to income (loss) from continuing operations:

Years Ended December 31, $ Change

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2022 2022 vs.

Net income (loss) $ 172,618 $ (340,820) $ (632,193) $ 513,438 $ 291,373

Income (loss) from continuing operations $ (64,540) $ 106,863 $ (344,177) $ (171,403) $ 451,040

Interest expense, net 572,150 264,265 456,825 307,885 (192,560)

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(4,696) 1,708 201,802 (6,404) (200,094)

Acquisition-related adjustments (6)

Non-cash acquisition-related adjustments and other, net (5)

(9,600) 29,747 7,431 (39,347) 22,316

Adjusted EBITDA (from continuing operations)

$ 2,364,800 $ 2,310,187 $ 2,107,247 $ 54,613 $ 202,940

Adjusted EBITDA $ 2,446,728 $ 2,212,579 $ 2,199,237 $ 234,149 $ 13,342

___________________

(1) During 2020, primarily included losses of $81 million in CSB associated with the settlement of a pre-existing relationship in connection with the Defenders Acquisition.

Refer to Note 4 “Acquisitions and Disposition.”

(2) During 2022, represents a goodwill impairment charge associated with our Solar reporting unit.

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

(3) During 2020, primarily includes $66 million associated with the redemption of the Prime Notes in February 2020 and $49 million associated with the redemption of the ADT Notes due 2021 in September 2020.

Refer to Note 7 “Debt.”

(4) During 2022, represents the change in fair value of the Forward Contract.

Refer to Note 10 “Equity.”

(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.

Refer to the discussion above under “- Results of Operations.”

(2) During 2022 and 2023, represents goodwill impairment charges associated with our Solar reporting unit (refer to Note 7 “Goodwill and Other Intangible Assets” and the discussion above under “- Results of Operations.”

(3) During 2022, represents the change in fair value of the Forward Contract (refer to Note 11 “Equity”).

(4) Refer to Note 1 “Description of Business and Summary of Significant Accounting Policies” for further details.

(6) During 2022 and 2021, primarily represents the amortization of the customer backlog intangible asset acquired in the ADT Solar Acquisition, which was fully amortized as of March 2022.

Refer to Note 4 “Acquisitions and Disposition.”

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

During 2020, included recoveries of $10 million associated with notes receivable from a former strategic investment.

(5) During 2023, primarily represents the gain on sale of a business and other investment partially offset by financing fees and interest rate swaps included in other income (expense).

During 2022, also includes the gain on sale of a business.

During 2022 and 2021, primarily represents the amortization of the customer backlog intangible asset acquired in the ADT Solar Acquisition, which was fully amortized as of March 2022 (refer to Note 4 “Acquisitions”).

Adjusted EBITDA in total and by segment were as follows:

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CSB $ 2,481,305 $ 2,305,032 $ 2,101,659 $ 176,273 $ 203,373

Commercial 126,940 96,112 45,338 30,828 50,774

Solar (116,505) 5,155 5,588 (121,660) (433)

Adjusted EBITDA $ 2,446,728 $ 2,212,579 $ 2,199,237 $ 234,149 $ 13,342

Adjusted EBITDA (from continuing operations)

$ 2,364,800 $ 2,310,187 $ 2,107,247 $ 54,613 $ 202,940

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

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

During 2022, the increase was primarily due to higher M&S Revenue of $188 million, lower advertising costs of $83 million, and lower field service and call center costs of $28 million, partially offset by higher provision for credit losses of $42 million.

The remainder of the change was primarily due to higher general and administrative expenses of $36 million.

During 2022, the increase was primarily due to higher M&S Revenue of $65 million and higher installation revenue, net of the associated installation costs, of $25 million, partially offset by higher field service and call center costs of $32 million and higher provision for credit losses of $12 million.

The remainder of the change was primarily due to higher selling expenses.

During 2022, Solar Adjusted EBITDA was impacted by installation delays and lower install throughput and reflects cost-reduction efforts and other initiatives to improve long-term operational efficiencies, and included approximately $21 million of charges associated with (i) receivables and rebates that are not expected to be collected from a former third party lender entering a formal insolvency proceeding to effectuate the wind-down of its operations, as well as (ii) third party loans for systems not expected to achieve permission to operate.

2023 compared to 2022

The increase was primarily due to:

• higher M&S Revenue, net of the associated costs, of $140 million,

• lower general and administrative expenses of $39 million,

• higher installation revenue, net of the associated costs and commissions, of $23 million, and

• lower advertising costs of $15 million, partially offset by

• higher provision for credit losses of $50 million.

The decrease was primarily due to:

• lower installation revenue, net of the associated costs and commissions, of $213 million, partially offset by

• lower general and administrative expenses of $84 million.

2022 compared to 2021

The increase was primarily due to:

• higher M&S Revenue, net of the associated costs, of $215 million and

• lower advertising costs of $83 million, partially offset by

• higher provision for credit losses of $42 million

• and higher general and administrative expenses of $36 million.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity and capital resources primarily consisted of the following:

Liquidity and capital resources, along with our outstanding debt, primarily consist of the following:

(in thousands) December 31, 2023

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We expect our ongoing sources of liquidity to include cash generated from operations, borrowings under our first lien revolving credit facility (the “First Lien Revolving Credit Facility”) and the 2020 Receivables Facility, and the issuance of equity and/or debt securities as appropriate given market conditions.

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

Our principal liquidity requirements are to finance current operations, invest in acquiring and retaining customers, purchase property and equipment, service our debt, invest in our information technology infrastructure, and finance potential mergers and acquisitions.

Our liquidity requirements are primarily funded by our cash flows from operations, which include cash received from customers related to monthly recurring revenue from providing monitoring and other services, as well as cash from the sale and installation of our security and solar systems (including cash received from third-party lenders who provide loan products for customers), less cash costs to provide services to our customers, including general and administrative costs, certain costs associated with acquiring new customers, and interest payments.

In addition to cash generated from operations, we expect our ongoing sources of liquidity to include borrowings under our revolving credit facility and Receivables Facility, as well as the issuance of equity and/or debt securities as appropriate given market conditions.

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

Our liquidity requirements are primarily funded by our cash flows from operations, which include cash received from customers related to monthly recurring revenue from providing monitoring and other services, as well as cash from the sale and installation of our security and, prior to the exit from our solar business, solar systems (including cash received from third-party lenders who provide loan products for customers), less cash costs to provide services to our customers, general and administrative costs, certain costs associated with acquiring new customers, and interest payments.

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

As of December 31, 2023, our next debt maturity will occur in April 2024 with respect to the remaining outstanding balance of $100 million of our First Lien Notes due 2024.

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

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

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

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

Existing instruments under the First Lien Credit Agreement will continue to be based on LIBOR until the SOFR Transition Date, unless transitioned to SOFR prior to such date pursuant to the terms of the First Lien Credit Agreement.

As of December 31, 2022, we do not anticipate any material impacts from the SOFR Transition.

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

However, we believe our cash position, borrowing capacity available under our First Lien Revolving Credit Facility and 2020 Receivables Facility, and cash provided by operating activities are, and will continue to be, adequate to meet our operational and business needs in the next twelve months, as well as our long-term liquidity needs.

In addition, in 2023, we entered into a Receivables Financing Agreement with Mizuho Bank, Ltd.

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

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

As of December 31, 2023, we have not borrowed any amounts under the Solar Receivables Facility, and given the decision to exit the residential solar business, we do not expect to borrow any amounts under the Solar Receivables Facility.

The Solar Receivables Facility’s uncommitted revolving period will expire in August 2024, unless terminated beforehand.

Material Cash Requirements

Our cash requirements within the next twelve months primarily include current maturities of long-term debt and leases, accounts payable and other current liabilities, and purchase commitments and other obligations entered into in the ordinary course of business.

Our cash requirements within the next twelve months primarily include current maturities and interest on our long-term debt and leases, accounts payable and other current liabilities, purchase commitments and other obligations entered into in the ordinary course of business, and dividends on our common stock.

As of December 31, 2023, our significant short-term and long-term cash requirements, excluding cash required for operations, under our various contractual obligations and commitments primarily included:

• Debt principal – As of December 31, 2022, our expected future debt principal payments, excluding finance leases, totaled approximately $9.9 billion, with approximately $827 million due in 2023 primarily related to the ADT Notes due 2023 (defined below).

In addition, we are required to make scheduled quarterly principal payments of approximately $7 million on our First Lien Term Loan due 2026, as well as repay amounts due under our Receivables Facility.

In addition, upon funding of the Term Loan A Facility during the first quarter of 2023, we expect to make scheduled quarterly principal payments of approximately $8 million with the remaining balance due at maturity.

• Debt principal – As of December 31, 2023, our expected future debt principal payments, excluding finance leases, totaled approximately $7.9 billion, with $287 million due in 2024 primarily related to the $100 million outstanding ADT Notes due 2024 (defined below) and repayments on the 2020 Receivables Facility, and including required quarterly principal payments on our First Lien Term Loan due 2030 and Term Loan A Facility totaling approximately $46 million.

Refer to Note 8 “Debt” for further details of our debt and the timing of expected future principal payments.

• Interest payments – Future interest payments on our fixed-rate debt are based on the contractual terms.

Future interest payments on our variable-rate debt and the effects of our interest rate swaps (including interest rate swaps presented within financing activities), are based on the forward LIBOR curve, except for our Receivables Facility, which is based on SOFR, plus the applicable margin in effect as of December 31, 2022.

During 2022, we paid net cash interest of approximately $471 million, including interest on interest rate swaps presented within financing activities.

Our expected future interest payments related to our debt and interest rate swap contracts as of December 31, 2022, including interest related to the Term Loan A Facility described below, totaled approximately $2.3 billion, with approximately $510 million due in 2023.

Additionally, we expect to incur annual interest payments of approximately $370 - $480 million during each of the years 2024 - 2026.

• Operating and finance leases – As of December 31, 2022, our expected future lease payments, including interest, totaled approximately $275 million, with approximately $78 million due in 2023.

Future interest payments on our variable-rate debt and the effects of our interest rate swaps are based on SOFR, plus the applicable margin in effect as of December 31, 2023.

During 2023, we paid net cash interest of $523 million, including interest on interest rate swaps presented outside of operating activities.

As of December 31, 2023, our expected future interest payments related to our debt and interest rate swap contracts totaled approximately $1.9 billion, with approximately $369 million due in 2024.

Additionally, we expect to incur annual interest payments of approximately $325 - $360 million during each of the years 2025 - 2026 and approximately $200 - $300 million during each of the years 2027 and 2028.

• Operating and finance leases – As of December 31, 2023, our expected future lease payments, including interest, totaled $221 million, with $54 million due in 2024.

Refer to Note 15 “Leases” for further details of our obligations and the timing of expected future payments.

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As of December 31, 2023, our contractual obligations entered into in the ordinary course of business, including agreements that are enforceable and legally binding and have a remaining term in excess of one year, totaled approximately $482 million, with approximately $323 million expected to be paid in 2024.

These amounts include a commitment with one of our vendors to purchase at least $190 million of security system equipment and components through March 2025.

This commitment is also satisfied through purchases made by the Company’s dealer network.

Refer to Note 14 “Commitments and Contingencies” for the amounts and timing of such payments.

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While the timing of these contributions is still uncertain, we expect to contribute the majority of our $150 million commitment under the Google Commercial Agreement by the end of 2026.

During 2023, $40 million of the Google Success Funds were reimbursed to the Company for our share of joint marketing expenses incurred and reflected as a reduction of advertising costs.

In addition, under the Google Cloud Agreement Addendum, the Company is obligated to make purchases from Google totaling $200 million over a seven-year period (through December 2030), with $35 million in the first two years, $65 million in the next two years after that, and $100 million in the last three years of the commitment.

• State Farm Opportunity Fund – Pursuant to the State Farm Development Agreement, State Farm committed up to $300 million to fund product and technology innovation, customer growth, and marketing initiatives.

Upon the Closing of the State Farm Strategic Investment, we received $100 million of such commitment from State Farm, which is restricted until we use the funds for investment, as agreed upon with State Farm, in accordance with the State Farm Development Agreement.

During 2023, payments made from the Opportunity Fund were $11 million.

• Customer account purchases – Our indirect channel customers are generated mainly through our ADT Authorized Dealer Program.

As opportunities arise, we have in the past engaged, and we may continue to engage, in selective third-party account purchases, which typically involve the purchase of a set of customer accounts from other security service providers.

• Repurchase of Solar loans – As of December 31, 2022, we recognized a liability of approximately $88 million related to certain loans provided to customers within our Solar business that we may be required to repurchase from our third party lenders.

We recorded a receivable related to the amount we expect to recover if permission to operate is achieved in the event the third party lenders do require us to repurchase such loans.

• Sunlight Financial LLC (“Sunlight”) – We use Sunlight, a related party controlled by Apollo, to provide financing alternatives to certain ADT Solar customers.

We incurred $54 million of financing fees during 2022, and future amounts due to Sunlight will be based on the volume of loans provided.

• Unrecognized tax benefits – We have approximately $56 million of unrecognized tax benefits, excluding interest and penalties, related to various tax positions we have taken.

For example, in December 2023, we purchased customer accounts from a third party for $89 million in cash.

• ADT Solar Exit and Repurchase of Solar loans – As of December 31, 2023, we recognized a liability of $15 million related to certain loans provided to customers within our Solar business that we may be required to repurchase from our third-party lenders.

In addition, we expect to incur cash expenditures of approximately $50 million - $70 million associated with the exit from our solar business.

Additional expenditures could occur with our third-party lenders in connection with the ADT Solar Exit.

• Unrecognized tax benefits – We have $49 million of unrecognized tax benefits, excluding interest and penalties, related to various tax positions we have taken.

These liabilities may increase or decrease over time primarily as a result of tax examinations, and given the status of the examinations, we cannot reliably estimate the period of any cash settlement with the respective taxing authorities.

Refer to Note 10 “Income Taxes” for further details.

• Off-balance sheet arrangements – We have guarantees primarily related to standby letters of credit on our insurance programs totaling $93 million.

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

• Off-balance sheet arrangements – As of December 31, 2023, we had guarantees primarily related to standby letters of credit on our insurance programs totaling $78 million.

We do not have any other arrangements giving rise to material obligations that are not reported in our consolidated balance sheets, as described in Item 303 of SEC Regulation S-K.

• Dividends – Stockholders are entitled to receive dividends when, as, and if declared by the Company’s Board of Directors out of funds legally available for that purpose.

On February 28, 2023, we announced a dividend of $0.035 per share to holders of Common Stock and Class B Common Stock of record on March 16, 2023, which will be distributed on April 4, 2023.

On January 24, 2024, we announced a 57% increase to our

quarterly dividend to $0.055 per share to holders of Common Stock and Class B Common Stock of record on March 14, 2024, which will be distributed on or about April 4, 2024.

During 2023, we declared aggregate dividends of $0.14 per share on Common Stock ($121 million) and $0.14 per share on Class B Common Stock ($8 million).

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Refer to Note 11 “Equity” for further details.

• Share Repurchase Plan – On January 24, 2024, the Company's Board of Director's announced the Share Repurchase Plan, pursuant to which the Company is authorized to repurchase, through late January 2025, up to a maximum aggregate amount of $350 million of shares of the Company's common stock under this Share Repurchase Plan.

As of the date of this 2023 Annual Report, the Company has not made any repurchases under the Share Repurchase Plan.

Cash Flow Analysis

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Financing activities $ (2,143,849) $ (14,833) $ (128,448) $ (2,129,016) $ 113,615

The discussion below includes cash flows from both continuing operations and discontinued operations consistent with the presentation on the Statements of Cash Flows.

Cash Flows from Operating Activities

The increase in net cash provided by operating activities for 2022 compared to 2021 was primarily due to:

• a decrease in payments related to radio conversion costs, net of the related incremental revenue, of $194 million, partially offset by

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

• timing of payments to and receipts from vendors primarily related to accounts payable and inventory.

The decrease in net cash provided by operating activities for 2023 compared to 2022 was primarily due to:

• an increase in cash interest of $153 million,

• an increase in payroll tax payments of $26 million primarily related to deferrals of such payments in 2020 under the CARES Act, partially offset by

• $40 million of the Google Success Funds,

• $19 million related to a legal settlement, and

• an increase in receipts related to our radio conversion program of $9 million.

The decrease in net cash provided by operating activities also includes negative impacts from the solar business.

The remainder of the activity related to changes in assets and liabilities due to the volume and timing of other operating cash receipts and payments with respect to when the transactions are reflected in earnings.

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Cash Flows from Investing Activities

The decrease in net cash used in investing activities for 2022 compared to 2021 was primarily due to:

• a decrease in net outflows of $150 million related to acquisitions as a result of the ADT Solar acquisition during 2021 and

• a decrease in net outflows of $53 million related to dealer generated customer account and bulk account purchases, partially offset by

• an increase in net outflows of $40 million related to subscriber system assets expenditures as a result of more Company-owned transactions and our growth initiatives.

The change in net cash from investing activities for 2023 compared to 2022 was primarily due to:

• an increase in the proceeds from the sales of businesses of $1,583 million primarily related to the Commercial Divestiture in 2023,

• a decrease in net outflows of $104 million related to subscriber system assets expenditures due to lower volume, and

• an increase in other investing activities of $42 million primarily related to the 2023 sale of our equity method investment we made in 2022.

Cash Flows from Financing Activities

During 2022, net cash used in financing activities primarily consisted of:

• $1.2 billion issuance of State Farm shares and corresponding repurchase of $1.2 billion related to the Tender Shares, as well as Opportunity fund proceeds of $101 million related to the State Farm Development Agreement,

• dividend payments of $127 million, and

• net debt payments of $55 million, finance lease payments of $45 million, and interest rate swap payments of $19 million, partially offset by

• net proceeds under the Receivables Facility of $156 million.

During 2021, net cash used in financing activities primarily consisted of:

• dividend payments of $116 million, and

• interest rate swap payments of $56 million, finance leases payments of $32 million, and net debt payments of $23 million;

partially offset by

• net proceeds under the Receivables Facility of $123 million.

The increase in net cash used in financing activities for 2023 compared to 2022 was primarily due to:

• an increase in net debt payments of $2,040 million primarily related to the partial redemptions in 2023 of our First Lien Term Loan due 2026 and ADT Notes due 2024,

• a decrease in net proceeds under the 2020 Receivables Facility of $75 million primarily due to higher repayments during 2023 as compared to 2022, and

• Opportunity fund proceeds of $101 million during 2022 as compared to net payments of $9 million during 2023, partially offset by

• proceeds on our interest rate swaps of $83 million during 2023 as compared to payments of $19 million during 2022.

During 2023, both the proceeds and repayments of long-term debt on the Consolidated Statements of Cash Flows include the impact of $230 million from the October refinancing of the First Lien Term Loan due 2026.

Net cash used in financing activities during 2022 also included the $1.2 billion issuance of State Farm shares and corresponding repurchase of $1.2 billion related to the Tender Shares.

Long-Term Debt

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Debt Description Issued Maturity Interest Rate Interest Payable Principal

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

LIBOR +2.75% Quarterly $ 2,730,269

First Lien Term Loan B due 2030 10/13/2023 10/13/2030 Term SOFR +2.50% Quarterly $ 1,375,000

Term Loan A Facility 3/14/2023 3/14/2028 Term SOFR +2.25% Quarterly 625,625

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

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ADT Notes due 2042 7/5/2012 7/15/2042 4.875% 1/15 and 7/15 21,896

Receivables Facility 3/5/2020 11/20/2027 Adj.

Daily SOFR +0.85% Monthly 354,741

2020 Receivables Facility 3/5/2020 11/20/2028 Various Monthly 436,004

Other debt 751

Total $ 7,937,291

Refer to Note 8 “Debt” for further details of our debt agreements, including interest rates, covenants, and other descriptions of these agreements.

First Lien Credit Agreement

Concurrently with the consummation of the Formation Transactions, we entered into a first lien credit agreement dated as of July 1, 2015 (together with subsequent amendments and restatements, the “First Lien Credit Agreement”), which has since been amended and restated on May 2, 2016, June 23, 2016, December 28, 2016, February 13, 2017, June 29, 2017, March 16, 2018, December 3, 2018, March 15, 2019 (effective April 4, 2019), September 23, 2019, January 27, 2021, and July 2, 2021.

The First Lien Credit Agreement consists of a term loan facility (the “First Lien Term Loan due 2026”) and the First Lien Revolving Credit Facility.

Below is a summary of key events related to the First Lien Credit Agreement during 2022, 2021, and 2020:

• In December 2020, we prepaid $300 million on the First Lien Term Loan due 2026.

• In January 2021, we amended and restated the First Lien Credit Agreement to refinance the First Lien Term Loan due 2026, which reduced the applicable margin for Adjusted LIBOR loans from 3.25% to 2.75% and reduced the floor from 1.00% to 0.75%.

• In July 2021, we amended and restated the First Lien Credit Agreement to extend the maturity date of the First Lien Revolving Credit Facility to June 23, 2026, subject to certain conditions.

We also obtained an additional $175 million of commitments, which increased the aggregate commitments under the First Lien Revolving Credit Facility to $575 million.

In 2022, we borrowed $550 million and repaid $575 million under the First Lien Revolving Credit Facility.

In 2021, we borrowed $185 million and repaid $160 million under the First Lien Revolving Credit Facility in connection with the ADT Solar Acquisition.

We are required to make scheduled quarterly principal payments of approximately $7 million on the First Lien Term Loan due 2026, with the remaining balance payable at maturity.

Our first lien credit agreement dated as of July 1, 2015 (together with subsequent amendments and restatements, the “First Lien Credit Agreement”) consists of a term loan facility (the “First Lien Term Loan due 2030,” and prior to October 2023, the “First Lien Term Loan due 2026”) and a first lien revolving credit facility (the “First Lien Revolving Credit Facility”).

Below is a summary of key events related to the First Lien Credit Agreement since 2022:

• During 2022, we borrowed $550 million and repaid $575 million under the First Lien Revolving Credit Facility.

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

• In October 2023, we amended and restated the First Lien Credit Agreement to refinance the remaining outstanding balance of the First Lien Term Loan due 2026 with a new $1,375 million 7-year term First Lien Term Loan B due 2030, among other things.

We did not borrow or repay any funds under the First Lien Revolving Credit Facility during 2023.

We are required to make scheduled quarterly principal payments on the First Lien Term Loan due 2030, with the remaining balance payable at maturity.

We may make voluntary prepayments on the First Lien Term Loan due 2030 at any time prior to maturity at par.

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As of December 31, 2023, we were not required to make any annual prepayments based on our excess cash flow.

The First Lien Term Loan due 2026 has an interest rate calculated as, at our option, either (a) LIBOR determined by reference to the costs of funds for Eurodollar deposits for the interest period relevant to such borrowing, adjusted for certain additional costs (“Adjusted LIBOR”) with a floor of 0.75%, or (b) a base rate determined by reference to the highest of (i) the federal funds rate plus 0.50% per annum;

(ii) the prime rate published by The Wall Street Journal;

and (iii) one-month Adjusted LIBOR plus 1.00% per annum (“Base Rate”), in each case, plus the applicable margin of 2.75% for Adjusted LIBOR loans and 1.75% for Base Rate loans and is payable on each interest payment date, at least quarterly, in arrears.

Any borrowings under the First Lien Revolving Credit Facility bear interest at a rate equal to, at our option, either (a) Adjusted LIBOR, or (b) the Base Rate, plus the applicable margin of 2.75% for Adjusted LIBOR loans and 1.75% for Base Rate loans.

Additionally, we are required to pay a commitment fee between 0.375% and 0.50% (determined based on a net first lien leverage ratio) with respect to the unused commitments under the First Lien Revolving Credit Facility.

In addition, we are required to pay a commitment fee between 0.375% and 0.50% (determined based on a net first lien leverage ratio) with respect to the unused commitments under the First Lien Revolving Credit Facility.

Term Loan A Facility

In September 2022, we entered into a debt commitment letter with various banks to provide up to an aggregate principal amount of $600 million of term loans under a senior secured term loan A facility (the “Term Loan A Facility”) on or before March 15, 2023 (the “Commitment Termination Date”) under a term loan credit agreement (the “Term Loan A Credit Agreement”).

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

As of December 31, 2022, we have not incurred indebtedness under the Term Loan A Facility.

However, we intend to execute the Term Loan A Credit Agreement and incur indebtedness under the Term Loan A Facility in the first quarter of 2023.

In March and June 2023, we borrowed aggregate principal amounts of $600 million and $50 million, respectively, of term loans under a senior secured term loan A facility (the “Term Loan A Facility”) and used the proceeds to redeem $650 million of the ADT Notes due 2023 (defined below).

We are required to make scheduled quarterly principal payments on the Term Loan A Facility, with the remaining balance payable at maturity.

We may make voluntary prepayments on the Term Loan A Facility at any time prior to maturity at par.

The Term Loan A Facility is subject to customary mandatory prepayment provisions, covenants, and restrictions, including a financial maintenance covenant requiring the Term Loan A Facility Borrowers to comply as of the last day of each fiscal quarter with a specified maximum consolidated net first lien leverage ratio.

Second Lien Notes due 2028

The 6.250% second-priority senior secured notes due 2028 (the “Second Lien Notes due 2028”) were issued in January 2020 to refinance and redeem the then-outstanding $1.2 billion aggregate principal amount of our 9.250% second-priority senior secured notes due 2023 (the “Prime Notes”).

As of January 15, 2023, the Second Lien Notes due 2028 may be redeemed at our option, in whole at any time or in part from time to time, at a redemption price equal to 103.125% of the principal amount of the Second Lien Notes due 2028 redeemed and accrued and unpaid interest as of, but excluding, the redemption date.

The redemption price decreases to 101.563% on or after January 15, 2024 and decreases to 100% on or after January 15, 2025.

The 6.250% second-priority senior secured notes due 2028 (the “Second Lien Notes due 2028”) are due at maturity and may be redeemed at our option, in whole at any time or in part from time to time, at a redemption price equal to 103.125% of the principal amount of the Second Lien Notes due 2028 redeemed and accrued and unpaid interest as of, but excluding, the redemption date.

The redemption price decreased to 101.563% on or after January 15, 2024 and decreases to 100% on or after January 15, 2025.

Additionally, upon the occurrence of specified change of control events, we must offer to repurchase the Second Lien Notes due 2028 at 101% of the principal amount, plus accrued and unpaid interest, if any, to, but not including, the purchase date.

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Additionally, upon the occurrence of specified change of control events, we must offer to repurchase the notes at 101% of the principal amount, plus accrued and unpaid interest, if any, to, but not including, the purchase date.

The indentures governing the First Lien Notes due 2024 and First Lien Notes due 2026 also provide for customary events of default.

Below is a summary of significant activity related to the First Lien Notes due 2024 since 2022:

We redeemed $150 million principal amount of the outstanding First Lien Notes due 2024 for a redemption price of $150 million, excluding accrued and unpaid interest, using cash on hand.

• December 2023:

We redeemed $500 million principal amount of the outstanding First Lien Notes due 2024 for a redemption price of $500 million, excluding accrued and unpaid interest, using remaining net proceeds from the Commercial Divestiture and cash on hand.

First Lien Notes due 2027

The 3.375% first-priority senior secured notes due 2027 (the “First Lien Notes due 2027”) were issued in August 2020 to refinance and redeem the then-outstanding $1.0 billion aggregate principal amount of the 6.250% ADT Notes due 2021 (the “ADT Notes due 2021”).

The First Lien Notes due 2027 may be redeemed at our option as follows:

The 3.375% first-priority senior secured notes due 2027 (the “First Lien Notes due 2027”) are due at maturity and may be redeemed at our option as follows:

• Prior to August 31, 2026, in whole at any time or in part from time to time, at a make-whole premium plus accrued and unpaid interest, if any, thereon to the redemption date.

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First Lien Notes due 2029

The 4.125% first-priority senior secured notes due 2029 (the “First Lien Notes due 2029”) were issued in July 2021 to refinance and redeem the then-outstanding $1.0 billion aggregate principal amount of the ADT Notes due 2022.

The First Lien Notes due 2029 may be redeemed at our option as follows:

The 4.125% first-priority senior secured notes due 2029 (the “First Lien Notes due 2029”) are due at maturity and may be redeemed at our option as follows:

• Prior to August 1, 2028, in whole at any time or in part from time to time, at a redemption price equal to the greater of (i) 100% of the principal amount of the First Lien Notes due 2029 to be redeemed and (ii) the sum of the present values of the aggregate principal amount of the First Lien Notes due 2029 to be redeemed and the remaining scheduled interest payments due on any date after the redemption date, to and including August 1, 2028, discounted at an adjusted treasury rate plus 50 basis points, plus, in either case accrued and unpaid interest as of, but excluding, the redemption date.

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Additionally, upon the occurrence of specified change of control events, we may be required to purchase the First Lien Notes due 2029 at 101% of the principal amount, plus accrued and unpaid interest, if any, to, but not including, the purchase date.

The indenture also provides for customary events of default.

Below is a summary of key events related to the ADT Notes since 2021:

• In August 2021, we redeemed the outstanding $1.0 billion aggregate principal amount of the ADT Notes due 2022 at a price of $1.0 billion.

• As of December 31, 2022, we had an outstanding balance of $700 million under the ADT Notes due 2023 that was classified as a current liability, net of any unamortized discount.

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

• On February 10, 2023, we delivered a partial redemption notice to the holders of the ADT Notes due 2023 to redeem approximately $600 million of the $700 million ADT Notes due 2023 on March 15, 2023, including accrued and unpaid interest on the ADT Notes due 2023 so redeemed (the “ADT Notes due 2023 Partial Redemption”).

We expect to draw the Term Loan A Facility for the ADT Notes due 2023 Partial Redemption and use cash on hand to redeem the remaining approximately $100 million of the ADT Notes due 2023 on or before maturity in June 2023.

The indenture governing the First Lien Notes due 2029 also provides for customary events of default.

The remaining outstanding ADT Notes are due at maturity, and may be redeemed, in whole at any time or in part from time to time, at a redemption price equal to the principal amount of the notes to be redeemed, plus a make-whole premium, plus accrued and unpaid interest as of, but excluding, the redemption date.

Additionally, upon the occurrence of specified change of control events, we must offer to repurchase the ADT Notes at 101% of the principal amount, plus accrued and unpaid interest, if any, to, but not including, the purchase date.

Additionally, upon the occurrence of specified change of control events, the Company must offer to repurchase the ADT Notes at 101% of the principal amount, plus accrued and unpaid interest, if any, to, but not including, the purchase date.

The indentures governing the ADT Notes also provide for customary events of default.

Below is a summary of key events related to the ADT Notes due 2023 since 2022:

• March 2023:

The Company used the proceeds from the Closing Date Term Loan A Loans to redeem $600 million outstanding principal amount of the ADT Notes due 2023 for a total redemption price of $600 million, excluding any accrued and unpaid interest.

The Company redeemed the remaining outstanding principal amount of $100 million for a total redemption price of $100 million using $50 million of proceeds from the Incremental Term Loan A Loans and the remaining from cash on hand.

2020 Receivables Facility

During March 2020, we entered into the Receivables Facility whereby we obtain financing by selling or contributing certain retail installment contract receivables to our wholly-owned consolidated bankruptcy-remote special purpose entity (“SPE”).

The 2020 Receivables Facility allows us to obtain financing by selling or contributing certain retail installment contract receivables to our wholly-owned consolidated bankruptcy-remote special purpose entity (“SPE”).

The SPE grants a security interest in those retail installment contract receivables as collateral for cash borrowings under the 2020 Receivables Facility.

The SPE borrower under the 2020 Receivables facility is a separate legal entity with its own creditors who will be entitled, prior to and upon the liquidation of the SPE, to be satisfied out of the SPE’s assets prior to any assets of the SPE becoming available to us (other than the SPE).

Accordingly, the assets of the SPE are not available to pay our creditors (other than the SPE), although collections from the transferred retail installment contract receivables in excess of amounts required to repay amounts then due and payable to the SPE’s creditors may be released to us and subsequently used by us (including to pay other creditors).

The SPE’s creditors under the 2020 Receivables Facility have legal recourse to the transferred retail installment contract receivables owned by the SPE, and to us for certain performance and operational obligations relating to the 2020 Receivables Facility, but do not have any recourse to us (other than the SPE) for the payment of principal and interest on the advances under the 2020 Receivables Facility.

Significant amendments to the Receivables Facility since 2021 were as follows:

• In March 2021, the Receivables Facility was amended to, among other things, extend the scheduled termination date for the uncommitted revolving period to March 4, 2022, and reduce the spread over LIBOR payable in respect of borrowings thereunder from 1.00% to 0.85%.

• In July 2021, the Receivables Facility was amended into the form of a Receivables Financing Agreement, which continued the uncommitted secured lending arrangement contemplated among the parties and, among other things, provided for certain revisions to funding, prepayment, reporting, and other provisions in preparation for a potential future syndication of the advances made under the Receivables Facility.

• In October 2021, the documentation governing the Receivables Facility was further amended in connection with the syndication of the advances thereunder to two additional lenders:

MUFG Bank, Ltd.

and Starbird Funding Corporation (a conduit lender related to BNP Paribas).

As part of the amendment, the Receivables Facility’s uncommitted lending limit was increased from $200 million to $400 million, and the scheduled termination date for the Receivables Facility’s uncommitted revolving period was extended to October 28, 2022.

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

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

Below is a summary of significant amendments to the 2020 Receivables Facility since 2022:

Changed the benchmark rate from 1-month LIBOR to Daily SOFR, extended the scheduled termination date for the uncommitted revolving period from October 2022 to May 2023, and amended certain other terms to increase the advance rate on pledged collateral.

• March 2023:

Increased the borrowing capacity from $400 million to $500 million and extended the uncommitted revolving period from May 2023 to March 2024, among other things.

We service the transferred retail installment contract receivables and are responsible for ensuring related collections are remitted to a segregated account in the SPE’s name.

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The segregated account is considered restricted cash in our Consolidated Balance Sheets.

During 2022, proceeds and repayments were $277 million and $121 million, respectively.

During 2021, proceeds and repayments were $254 million and $130 million, respectively, both of which include the non-cash impact of approximately $88 million from the October 2021 amendment.

Proceeds and repayments under the 2020 Receivables Facility since 2022 were as follows:

Proceeds of $282 million and repayments of $200 million.

Proceeds of $277 million and repayments of $121 million.

Debt Covenants

The First Lien Credit Agreement and indentures associated with the borrowings above contain certain covenants and restrictions that limit our ability to, among other things, incur additional debt or issue certain preferred equity interests;

Our credit agreements and indentures associated with the borrowings above contain certain covenants and restrictions that limit our ability to, among other things, incur additional debt or issue certain preferred equity interests;

create liens on certain assets;

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The covenant is tested if the outstanding loans under the First Lien Revolving Credit Facility, subject to certain exceptions, exceed 30% of the total commitments under the First Lien Revolving Credit Facility at the testing date (i.e., the last day of any fiscal quarter).

We are also subject to a financial maintenance covenant under the Term Loan A Facility credit agreement, which requires the borrowers under Term Loan A Facility to comply as of the last day of each fiscal quarter with a specified maximum consolidated net first lien leverage ratio.

As of December 31, 2023, we were in compliance with all financial covenant and other maintenance tests for all our debt obligations, and we do not believe there is a material risk of future noncompliance with our financial covenant and other maintenance tests.

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

The following discussion includes estimates prepared in accordance with GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations, and are based on, among other things, estimates, assumptions, and judgments made by management that include inherent risks

and uncertainties.

We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances.

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Revenue Recognition

We generate revenue through contractual monthly recurring fees received for monitoring and related services provided to customers as well as the sale and installation of security, fire, and solar systems.

We generate revenue through contractual monthly recurring fees received for monitoring and related services provided to customers as well as the sale and installation of security and solar systems.

We allocate transaction price to each performance obligation based on relative standalone selling price, which is determined using observable internal and external pricing, profitability, and certain operational metrics.

Approximately half of Commercial security installation, product, and other revenue is recognized over time.

Progress toward complete satisfaction of the performance obligation is primarily measured using a cost-to-cost measure of progress method.

This method uses cost inputs that are based primarily on the contract cost incurred to date compared to the total estimated contract cost.

The total estimated contract cost can vary period to period based on, for example, project delays or changes in material costs, which may impact the estimated progress.

The cost-to-cost measure of progress method includes forecasts based on the best information available and reflects our judgment to faithfully depict the value of the services transferred to the customer.

There were no material adjustments or impacts from changes in estimates during the periods presented.

Estimated Life of Customer Relationships

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These assets are accounted for on a pooled basis based on the month and year of acquisition.

Based on the results of our lifing studies, we amortize our pooled contracts with customers using an accelerated method over the estimated life of the customer relationship, which is 15 years.

Based on the results of our lifing studies, we amortize our pooled contracts with customers using an accelerated method over the estimated life of the customer relationship, which is generally 15 years.

The accelerated method for amortizing these contracts utilizes an average declining balance rate of approximately 300% and converts to straight-line methodology when the resulting amortization charge is greater than that from the accelerated method, resulting in an average amortization of approximately 65% of the pool within the first five years, 25% within the second five years, and 10% within the final five years.

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Significant changes in our business model, such as a reduction in the number of customers under multi-year contracts, or a prolonged shift in our attrition patterns, could impact the expected life of our customer pools.

There were no material impacts to these accelerated methods and estimated lives as a result of the Commercial Divestiture.

Goodwill and indefinite-lived intangible assets (as discussed below) are not amortized and are tested for impairment at least annually as of the first day of the fourth quarter of each year and more often if an event occurs or circumstances change which indicate it is more-likely-than-not that fair value is less than carrying amount.

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

On October 1, 2022, we completed our annual goodwill impairment tests by qualitatively testing the goodwill assigned to the CSB reporting unit and quantitatively testing the goodwill assigned to the Commercial and Solar reporting units.

We estimated the fair value of our Commercial and Solar reporting unit using the income approach, which discounts projected cash flows using market participant assumptions.

The income approach includes significant assumptions including, but not limited to, forecasted revenue, operating profit margins, Adjusted EBITDA margins, operating expenses, cash flows, perpetual growth rates, and discount rates.

CSB - On October 1, 2023, we completed our annual goodwill impairment test by quantitatively testing the goodwill assigned to the CSB reporting unit.

Based on the results of the quantitative test, we concluded that the fair value of the CSB reporting unit substantially exceeds its carrying value.

We estimated the fair value of our CSB reporting unit using the income approach, which discounts projected cash flows using market participant assumptions.

discount rates.

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

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As a result, there are inherent uncertainties related to these judgments and factors in applying them to the goodwill impairment tests.

CSB - Based on the results of the qualitative test, we concluded it is more likely than not that the fair value of the CSB reporting unit exceeds its carrying value.

Commercial - The reporting unit performed above expectations in 2022, thus driving an increase in projected future period growth, which more than offset negative impacts from macroeconomic conditions.

Based on the results of a quantitative test, we concluded the fair value of the Commercial reporting unit exceeded its carrying value by approximately 50%.

As of our October 1, 2021 goodwill impairment test, we concluded the fair value of the Commercial reporting unit exceeded its carrying value by approximately 20%.

The results of our sensitivity analysis did not have a material impact on the conclusions reached.

Solar - During the third quarter of 2022, as a result of ADT Solar’s underperformance of recent operating results in successive quarters relative to expectations, as well as current macroeconomic conditions, including the impact of a continued increase in interest rates, we performed an interim impairment quantitative assessment as of September 30, 2022, and recorded a goodwill impairment loss of $149 million.

Additionally, on October 1, 2022, we quantitatively tested the goodwill associated with the Solar reporting unit as part of our annual goodwill impairment test.

Based on the results of the quantitative test, the Solar reporting unit is considered at risk of future impairment as the carrying value of the Solar reporting unit approximates its fair value following the impairment charge in the third quarter of 2022.

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.

For example, a decrease of approximately 8% in 2023 projected revenues, a decrease in the Adjusted EBITDA margin across all periods of 0.5%, or an increase in the weighted average cost of capital by 1.5%, holding other assumptions constant, would result in approximately $40 million of additional impairment.

Commercial - As a result of the purchase price of the Commercial Divestiture being substantially in excess of carrying value of the net assets divested, the Company concluded it is more likely than not that the fair value of the Commercial reporting unit exceeded its carrying value as of October 1, 2023, and the Commercial Divestiture closed on October 2, 2023.

Solar - During the first, second, and third 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, June 30, 2023, and September 30, 2023, and recorded goodwill impairment charges of $242 million, $181 million, and $88 million during the first, second, and third quarters of 2023, respectively.

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 in connection with these impairments, and impairment charges were not material.

These impairments were a result of continued deterioration of industry conditions and macroeconomic decline as well as ADT Solar’s underperformance of operating results in successive quarters relative to expectations, and during the third quarter of 2023, as a result of the Company’s then recent plan to close a significant number of branches that operated the Solar business along with the associated headcount reductions.

Indefinite-Lived Intangible Assets

As of December 31, 2023, our only indefinite-lived intangible asset is the ADT trade name, which has a carrying value of $1.3 billion and was recognized in connection with the ADT Acquisition in May 2016.

The fair value of the ADT trade name is determined under a relief from royalty method, which is an income approach that estimates the cost savings that accrue to us that we would otherwise have to pay in the form of royalties or license fees on revenue earned through the use of the asset.

When performing a quantitative assessment, the fair value of the ADT trade name is determined under a relief from royalty method, which is an income approach that estimates the cost savings that accrue to us that we would otherwise have to pay in the form of royalties or license fees on revenue earned through the use of the asset.

The utilization of the relief from royalty method requires us to make significant assumptions including revenue growth rates, the implied royalty rate, and the discount rate.

As of our October 1, 2022 and October 1, 2021 impairment tests, the fair value of the ADT trade name significantly exceeded its carrying value.

We performed a quantitative impairment test over the ADT trade name as of October 1, 2023 and 2022, and the fair value of the ADT trade name substantially exceeded its carrying value as of each testing date.

In connection with our quantitative impairment test, we perform a sensitivity analysis on the key assumptions used to determine the fair value of the ADT trade name.

During the periods presented, the results of our sensitivity analysis did not have a material impact on the conclusions reached.

We may, in future periods, perform a qualitative testing approach, where we assess whether it is more-likely-than-not that the ADT trade name’s fair value is less than its carrying amount.

Business Combinations

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Customer Relationships - Customer relationships acquired as part of business acquisitions are generally amortized over a period of up to 15 years based on management estimates about the amounts and timing of estimated future revenue from customer accounts and average customer account life that existed at the time of the related business acquisition.

The majority of our customer relationships acquired in business combinations originated from the Formation Transactions and the ADT Acquisition, the majority of which will be fully amortized during 2023.

The majority of our

customer relationships acquired in business combinations that originated from the Formation Transactions and the ADT Acquisition were fully amortized during 2023.

Dealer Relationships - Dealer relationships originated from the Formation Transactions and the ADT Acquisition and are primarily amortized on a straight-line basis over 19 years based on management estimates about the longevity of the underlying dealer network and the attrition of those respective dealers that existed at the time of the related business acquisition.

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however, due to the complexity of some of these uncertainties, the ultimate resolution may result in a change to the estimated liabilities, along with impacts to the effective tax rate and cash tax.

As of December 31, 2022, there were no material changes to our valuation allowances or unrecognized tax benefits since the prior year.

Refer to Note 10 “Income Taxes” for details on our valuation allowances and unrecognized tax benefits.

ACCOUNTING PRONOUNCEMENTS

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What changed 10-K

Item 7. Management’s Discussion and Analysis