What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-04-25 compared with 2023-11-02 · 137 added, 234 removed, 210 unchanged (64% of the section changed)

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

To obtain a more comprehensive understanding of our financial condition, changes in financial condition, and results of operations, the following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements and the related notes included in our Amended 2022 Annual Report, which was filed with the SEC on July 27, 2023.

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

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

• Introduction

• Business and Basis of Presentation

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• Cautionary Statements Regarding Forward-Looking Statements

BUSINESS AND BASIS OF PRESENTATION

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

As discussed in Note 1 “Description of Business and Summary of Significant Accounting Policies,” we divested our Commercial Business on October 2, 2023.

As of September 30, 2023, we served approximately 6.4 million security monitoring service subscribers, excluding commercial subscribers that were part of the Commercial Divestiture.

ADT (or “we,” “our,” and “us”), provides security, interactive, and smart home solutions to consumer and small business customers in the U.S.

As of March 31, 2024, we served approximately 6.4 million security monitoring service subscribers.

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.

Basis of Presentation

As of the third quarter of 2023, and following the Commercial Divestiture, we report financial and operating information for our two segments:

We report financial and operating information for our two segments:

CSB and Solar.

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All intercompany transactions have been eliminated.

We considered recent impacts from macroeconomic conditions such as inflationary pressures, rising interest rates, the uncertainty and volatility in the financial markets, and supply chain disruptions, as well as any on-going impacts from the COVID-19 Pandemic, in the assessment of our financial position, results of operations, and cash flows, as well as certain accounting estimates, as of and for the periods presented.

Business Updates

During the first quarter of 2023, we introduced our new ADT+ app for our self-setup line of do-it-yourself (“DIY”) smart home security products, including Google Nest offerings.

We expect to introduce our ADT+ app for professional installations through a phased rollout in the fourth quarter along with a new interactive platform and hardware lineup.

During the three and nine months ended September 30, 2023, $15 million and $40 million, respectively of the first tranche of the Google Success Funds were approved for reimbursement to the Company for Google’s portion of certain joint marketing expenses incurred by us, and we received cash of $27.5 million and $40 million, respectively.

Refer to Note 14 “Commitments and Contingencies” for further information on the Google Commercial Agreement.

In connection with the State Farm Development Agreement, State Farm committed up to $300 million to an Opportunity Fund, of which we received $100 million upon closing of the transaction.

Refer to Note 16 “Related Party Transactions” for further information on the State Farm Strategic Investment.

ADT Solar Exit

On January 19, 2024, after a strategic review of the business and continued macroeconomic and industry pressures, our Board of Directors approved a plan to fully exit the residential solar business.

The Company discontinued all sales and marketing activities during the first quarter and expects to discontinue substantially all field operations by the end of the second quarter.

During the three months ended March 31, 2024, we incurred aggregate charges of $75 million, related to (a) employee separation costs of $11 million, (b) long-lived asset impairments and write-off of deferred implementation costs associated with cloud computing arrangements of $20 million, (c) contract termination charges of $5 million, (d) the write-down and disposition of inventory on hand of $15 million, and (e) other charges of $24 million primarily related to charges associated with the disposition of the existing installation pipeline.

We expect to incur up to approximately an additional $35 million associated with the ADT Solar Exit.

Additionally, during the three months ended March 31, 2024, we paid $11 million, and we expect to spend an additional $40 million - $60 million, associated with the ADT Solar Exit.

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

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 and received net proceeds of approximately $1,585 million.

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

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

The Company’s reported operating metrics, 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.

As discussed in Note 8 “Debt,” in October 2023, we used a portion of the net proceeds from the Commercial Transaction to redeem approximately $1.3 billion of the First Lien Term Loan due 2026.

The remaining net proceeds along with cash on hand are expected to be used for debt redemption and repayments of the First Lien Notes due 2024 during the fourth quarter of 2023, which will reduce future cash interest payments accordingly.

Beginning in the fourth quarter of 2023, income expected to be received in connection with the TSA will be recognized in other income (expense).

The expenses expected to be incurred by the Company to support the transition will be recorded based on the nature of the expense.

We expect to record a significant gain on the sale, which will be recognized in income (loss) from discontinued operations, net of tax during the fourth quarter of 2023.

Further, we expect to utilize a significant portion of our existing net operating losses (“NOLs”) to offset an expected gain in connection with the sale of the Commercial Business.

We believe that we will utilize our remaining NOLs during 2024.

Thereafter, without additional NOLs, we expect to begin paying federal cash taxes as such taxes are incurred.

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

Solar Restructuring

On November 2, 2023, the Company announced a plan to close a significant number of branches that operate our Solar business along with the associated headcount reductions as a result of continued macroeconomic and industry pressures and the continued underperformance of the Solar business.

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

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

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

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

In addition, we expect to incur severance and other costs in connection with these current plans, which we do not expect to be material.

As discussed in Note 1 “Description of Business and Summary of Significant Accounting Policies” and Note 4 “Divestitures,” we divested our Commercial Business during the fourth quarter of 2023.

The results of the Commercial Business are classified as a discontinued operation in the Company’s Condensed Consolidated Statements of Operations for the historical periods presented.

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

The Company’s reported operating metrics, gross customer revenue attrition and recurring monthly revenue (as defined and discussed below), have been recast for any period prior to the sale to reflect only the CSB segment.

Income received in connection with the Commercial TSA is recognized in other income (expense), and the expenses incurred by the Company to support the transition are recorded based on the nature of the expense.

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 disclosed that 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 ADT Solar Exit.

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

FACTORS AFFECTING OPERATING RESULTS

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Generally, a significant upfront investment is required to acquire new CSB 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.

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.

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 recurring customer base can be expected to cancel its service each year as customers may choose to terminate or not to renew their contracts for a variety of reasons, including relocation, cost, loss to competition, 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 fewer new customer additions.

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

We have been experiencing fewer relocation disconnects and higher non-pay disconnects largely related to housing market conditions and the weaker macroeconomic environment.

We may continue to experience fluctuations in these or other trends in the future as changes in the general macroeconomic environment or housing market develop.

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.

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

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

Additionally, in our Solar business, we are exploring options for our customers seeking greater flexibility and accessibility in their rooftop solar financing.

For example, during the third quarter of 2023, we entered into an agreement with SunPower Financial to offer lease and power purchase agreement (“PPA”) financing options to new Solar customers.

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

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

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

We have experienced, and we 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.

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

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

Changes in interest rates or terms from third-party lenders that provide loan products to our Solar customers are impacted by factors such as the Federal Reserve increasing the risk-free interest rate or other developments in the financial markets, and we expect these third-party costs to continue to increase in future periods.

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

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

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

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

During 2022 and through the third quarter of 2023, we experienced fewer relocation disconnects and higher non-pay disconnects largely related to housing market conditions and the weaker macroeconomic environment.

We may continue to experience fluctuations in these or other trends in the future as changes in the general macroeconomic environment or housing market develop.

As part of our response to changes or pressures in the 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.

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.

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RESULTS OF OPERATIONS

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

Three Months Ended March 31,

(in thousands, except as otherwise indicated)

2023 2022 $ Change 2023 2022 $ Change

2024 2023 $ Change

Monitoring and related services $ 1,062,652 $ 1,028,634 $ 34,018

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RMR $ 353,274 $ 344,417 $ 8,857

Gross customer revenue attrition (percent) 12.9% 12.9% N/A* 12.9% 12.9% N/A*

Gross customer revenue attrition (percent) 13.1% 12.9% N/A*

Adjusted EBITDA (2)

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* N/A — Not applicable.

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

(in thousands)

2023 2022 $ Change 2023 2022 $ Change

Monitoring and related services $ 1,053,456 $ 1,021,811 $ 31,645 $ 3,125,344 $ 3,029,309 $ 96,035

Security installation, product, and other 126,417 88,829 37,588 355,082 235,506 119,576

Total CSB 1,179,873 1,110,640 69,233 3,480,426 3,264,815 215,611

Solar installation, product, and other 57,611 179,153 (121,542) 279,978 586,189 (306,211)

Total Solar 57,611 179,153 (121,542) 279,978 586,189 (306,211)

Total revenue $ 1,237,484 $ 1,289,793 $ (52,309) $ 3,760,404 $ 3,851,004 $ (90,600)

During the three months ended September 30, 2023, the increases in revenue, as compared to the prior period, included:

• Monitoring and related services revenue (“M&S Revenue”) :

higher recurring revenue of $32 million primarily driven by an increase in average prices.

• Security installation, product, and other :

(i) an increase in installation revenue of $22 million primarily driven by a higher volume of outright sales transactions and higher installation revenue per unit, as well as (ii) an increase in the amortization of deferred subscriber acquisition revenue of $16 million as a result of a higher population of existing customers under a Company-owned model.

During the nine months ended September 30, 2023, the increases in revenue, as compared to the prior period, included:

• M&S Revenue :

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

• CSB Monitoring and related services (“M&S Revenue”) :

higher recurring revenue of $34 million primarily driven by an increase in average prices.

• Security installation, product, and other :

(i) an increase in installation revenue of $68 million primarily driven by a higher volume of outright sales transactions and higher installation revenue per unit, as well as (ii) an increase in the amortization of deferred subscriber acquisition revenue of $52 million as a result of a higher population of existing customers under a Company-owned model.

During the three and nine months ended September 30, 2023, the decrease in revenue, as compared to the prior period, was primarily due to fewer sales and installations as a result of prior cost reduction efforts, delays in certain operational initiatives, and impacts from macroeconomic conditions, including higher interest rates.

In addition, the decrease in revenue for the nine months ended September 30, 2023 as compared to the prior period was impacted by the amortization of purchase accounting adjustments of $30 million related to a customer backlog intangible asset, which was recorded as a reduction to revenue during the first quarter of 2022.

In addition, future revenue in the segment may be impacted by the restructuring discussed above.

RMR and Gross Customer Revenue Attrition:

As of September 30, 2023, our ending RMR balance was $350 million, up $11 million or 3% compared to the prior period, primarily driven by an increase in average prices on new and existing subscribers.

Gross customer revenue attrition was 12.9% as of September 30, 2023, flat compared to September 30, 2022, reflecting a decrease in relocations, offset primarily by higher non-payment disconnects.

Cost of Revenue

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

(in thousands) 2023 2022 $ Change 2023 2022 $ Change

Monitoring and related services $ 148,533 $ 137,243 $ 11,290 $ 452,809 $ 445,720 $ 7,089

Security installation, product, and other 38,863 27,176 11,687 113,921 66,993 46,928

Total CSB 187,396 164,419 22,977 566,730 512,713 54,017

• CSB Security installation, product, and other :

(i) an increase in the amortization of deferred subscriber acquisition revenue of $14 million associated with customers under a Company-owned model, as well as (ii) an increase in installation revenue of $9 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.

• Solar installation, product, and other :

Total Solar 49,424 114,236 (64,812) 212,666 382,545 (169,879)

Total cost of revenue $ 236,820 $ 278,655 $ (41,835) $ 779,396 $ 895,258 $ (115,862)

During the three and nine months ended September 30, 2023, cost of revenue, as compared to the prior period, included an increase in installation costs due to a higher volume of outright sales transactions.

During the three and nine months ended September 30, 2023, the decrease in cost of revenue, as compared to the prior period, was primarily due to fewer sales and installations as discussed above.

fewer sales and installations as a result of the ADT Solar Exit.

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

Gross customer revenue attrition, as compared to the prior period, increased primarily due to higher non-payment disconnects partially offset by a decrease in relocations.

Cost of Revenue

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

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

a decrease in installation costs primarily due to fewer sales and installations as a result of the ADT Solar Exit, including $21 million primarily associated with the write-down and disposition of inventory.

Selling, General, and Administrative Expenses

During the three months ended September 30, 2023, the decrease in SG&A, as compared to the prior period, was primarily driven by:

• a decrease of $22 million in Solar, primarily due to recent cost reduction initiatives, and

• a decrease of $13 million in general and administrative expenses in CSB, partially offset by

• an increase of $14 million in the allowance for credit losses primarily related to residential customers.

During the nine months ended September 30, 2023, the decrease in SG&A, as compared to the prior period, was primarily driven by:

• a decrease of $86 million in Solar, primarily due to recent cost reduction initiatives,

• a decrease of $28 million in advertising costs, primarily due to utilization of a portion of the Google Success Funds, and

• a decrease of $26 million in general and administrative expenses in CSB primarily related to a legal settlement, partially offset by

• a decrease of $26 million in radio conversion costs due to the wind down of the replacement program,

• an increase of $38 million in selling costs primarily related to the amortization of deferred subscriber acquisition costs and commissions, and

• an increase of $32 million in the allowance for credit losses primarily related to residential customers.

During the three months ended March 31, 2024, the increase in SG&A, as compared to the prior period, was primarily driven by:

• an increase of $13 million in CSB selling costs primarily related to the amortization of deferred subscriber acquisition costs and commissions and

• an increase of $11 million in the CSB allowance for credit losses primarily related to residential customers, partially offset by

• a decrease in Solar of $18 million, which includes a decrease associated with reduced operations offset by impairment charges associated with the ADT Solar Exit.

Depreciation and Intangible Asset Amortization

During the three and nine months ended September 30, 2023, the decrease in depreciation and intangible asset amortization, as compared to the prior period, was primarily driven by a decrease in the amortization of customer relationship intangible assets of $65 million and $245 million, respectively, primarily related to certain assets acquired as part of the ADT Acquisition.

During the first quarter of 2023, the remaining customer relationship intangible assets acquired as part of the ADT Acquisition became fully amortized.

During the three months ended March 31, 2024, the decrease in depreciation and intangible asset amortization, as compared to the prior period, was primarily driven by a decrease in the amortization of customer relationship intangible assets of $32 million primarily related to certain assets acquired as part of the acquisition of The ADT Security Corporation in 2016, partially offset by an increase in the amortization of acquired customer contracts of $7 million.

Merger, restructuring, integration, and other

During the three months ended September 30, 2023, the increase in merger, restructuring, integration, and other, as compared to the prior period, was driven by an increase in restructuring costs of approximately $7 million primarily related to severance benefits and third-party costs of approximately $4 million primarily related to the strategic optimization of our Solar business operations following the acquisition of ADT Solar.

During the nine months ended September 30, 2023, the increase in merger, restructuring, integration, and other, as compared to the prior period, was driven by increases in restructuring costs of approximately $19 million primarily related to severance benefits and third-party costs of approximately $18 million primarily related to the strategic optimization of our Solar business operations following the acquisition of ADT Solar.

During the three months ended March 31, 2024, merger, restructuring, integration, and other primarily includes asset impairments and other write-offs, employee separation costs, and other charges associated with the ADT Solar Exit.

Refer to Note 4 “Divestitures” for additional information.

During the three months ended March 31, 2023, merger, restructuring, integration, and other primarily includes restructuring costs primarily related to certain facility exits, as well as integration and third-party costs related to the strategic optimization of our Solar business operations following the acquisition of ADT Solar.

Goodwill Impairment

During the three and nine months ended September 30, 2023, we recorded goodwill impairment charges associated with our Solar reporting unit of $88 million and $511 million, respectively, compared to $201 million during the three and nine months ended September 30, 2022.

Refer to Note 1 “Description of Business and Summary of Significant Accounting Policies,” Note 7 “Goodwill and Other Intangible Assets,” and the section “—Critical Accounting Estimates” below for further discussion.

During the three months ended March 31, 2024, we did not record any goodwill impairment charges.

During the three months ended March 31, 2023, we recorded goodwill impairment charges associated with our Solar reporting unit of $242 million as a result of then current macroeconomic conditions, including the impact of rising interest rates and financial market conditions on the Company’s third-party lenders and customer demand, as well as ADT Solar’s underperformance of operating results in the first quarter of 2023 relative to expectations.

Interest Expense, Net

During the three and nine months ended September 30, 2023, the increase in interest expense, net, as compared to the prior year period, was primarily driven by a decrease in unrealized gains of $92 million and $274 million, respectively on our interest rate swaps not designated as cash flow hedges.

Additionally, during the three months ended September 30, 2023, we recorded $25 million of expense 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.

In addition, the increase in interest expense, net, included higher interest expense primarily related to our First Lien Term Loan due 2026 offset by interest rate swap settlements.

During the three months ended March 31, 2024, the decrease in interest expense, net, as compared to the prior year period, was primarily driven by (i) an increase in unrealized gains (losses) of $49 million on our interest rate swaps and (ii) lower interest expense primarily related to lower principal amounts outstanding on our First Lien Term Loan due 2030 and our ADT Notes due 2024.

Other Income (Expense)

During the three and nine months ended September 30, 2022, other income (expense) primarily included the change in fair value of a contingent forward purchase contract related to the tender offer in connection with the State Farm Transaction of approximately $158 million.

During the three months ended March 31, 2024, the increase in other income (expense), as compared to the prior period, was primarily due to income received under the Commercial TSA.

Income Tax Benefit (Expense)

During the three and nine months ended September 30, 2023, income tax benefit (expense) impacted our annual effective tax rate primarily as a result of the Solar goodwill impairment charges.

During the three months ended March 31, 2024, income tax expense impacted our annual effective tax rate primarily as a result of the federal statutory rate of 21.0%, a state tax rate, net of federal benefits of 5.5%, partially offset by a favorable impact of 2.1% related to a decrease in unrecognized tax benefits related to prior years.

During the three months ended March 31, 2023 income tax benefit impacted our annual effective tax rate primarily as a result of the federal statutory tax rate of 21.0%, a state tax rate, net of federal benefits, of 8.9% and unfavorable impacts of 5.6% related to the Solar goodwill impairment, partially offset by favorable impacts of 5.0% from federal tax credits.

Refer to Note 8 “Income Taxes” for details on our effective tax rate.

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

While we have not reported any material changes to our valuation allowances since our Amended 2022 Annual Report, we may determine to do so in subsequent periods.

While we have not reported any material changes to our valuation allowances since our 2023 Annual Report, we may determine to do so in subsequent periods.

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

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This measure is not a financial measure calculated in accordance with GAAP, and it should not be considered as a substitute for net income, operating income, or any other measure calculated in accordance with GAAP, and may not be comparable to similarly titled measures reported by other companies.

Beginning in the third quarter of 2023, the Company presented its Commercial Business as a discontinued operation.

Prior periods have been recast to reflect the presentation of Adjusted EBITDA from continuing operations to conform with the current period presentation.

In addition, certain costs previously reflected in the Commercial segment that do not qualify to be presented as discontinued operations are now reflected in the CSB segment.

Adjusted EBITDA

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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 income or loss from continuing operations 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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(v) share-based compensation expense;

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

(vii) losses on extinguishment of debt;

(viii) radio conversion costs, net;

(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 or loss as calculated in accordance with GAAP.

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

(vii) impairment charges;

and (viii) non-cash, non-routine, or other adjustments or charges not necessary to operate our business.

There are material limitations to using Adjusted EBITDA as it does not include certain significant items, including interest, taxes, depreciation and amortization, and other adjustments which directly affect our income (loss) from continuing operations (the most comparable GAAP measure).

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:

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

(in thousands) 2023 2022 $ Change 2023 2022 $ Change

Three Months Ended March 31,

(in thousands) 2024 2023 $ Change

Income (loss) from continuing operations

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— 241,630 (241,630)

Change in fair value of financial instruments (3)

Other solar exits costs (3)

38,370 — 38,370

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

Other, net (4)

5,967 2,076 3,891

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________________

(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.

(1) During 2024, primarily includes $37 million of charges related to asset impairments and other write-offs, employee separation costs, and other charges related to the ADT Solar Exit (Refer to Note 4 “Divestitures”).

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

(2) Represents impairment charges associated with our Solar reporting unit.

Refer to Note 1 “Description of Business and Summary of Significant Accounting Policies” and Note 7 “Goodwill and Other Intangible Assets.”

(3) Represents the change in fair value of a contingent forward purchase contract associated with the State Farm Transaction.

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

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

Refer to Note 5 “Goodwill and Other Intangible Assets.”

(3) Includes other costs associated with the ADT Solar Exit, including charges of $19 million primarily associated with the disposition of the existing installation pipeline and $15 million associated with the write-down and disposition of inventory on hand.

Refer to Note 4 “Divestitures.”

(4) During 2024, primarily includes unrealized (gains) / losses on interest rate swaps presented within other income (expense).

Refer to Note 7 “Derivative Financial Instruments.”

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

As noted above, Adjusted EBITDA is our segment profit measure pursuant to GAAP and is therefore not a non-GAAP financial measure with respect to our segments.

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

(in thousands) 2023 2022 $ Change 2023 2022 $ Change

Three Months Ended March 31,

(in thousands) 2024 2023 $ Change

CSB $ 637,691 $ 590,031 $ 47,660

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

During the three months ended September 30, 2023, the increases, as compared to the prior periods, were primarily due to:

• higher M&S Revenue, net of the associated costs, of $26 million,

• lower general and administrative expenses of $13 million,

• and higher installation revenue, net of the associated costs and commissions, of $7 million,

• partially offset by higher provision for credit losses of $14 million.

During the nine months ended September 30, 2023, the increases, as compared to the prior periods, were primarily due to:

During the three months ended March 31, 2024, the increase, as compared to the prior period, was primarily due to:

• higher M&S Revenue, net of the associated costs, of $43 million,

• lower advertising costs of $28 million,

• lower general and administrative expenses of $26 million,

• and higher installation revenue, net of the associated costs and commissions, of $11 million,

• partially offset by higher provision for credit losses of $32 million.

During the three and nine months ended September 30, 2023, respectively, the decreases, as compared to the prior periods, were primarily due to:

• lower installation revenue, net of the associated costs and commissions, of $50 million and $154 million, partially offset by

• lower general and administrative expenses, of $26 million and $72 million.

• higher other income of $20 million, including TSA income, partially offset by

• higher selling, general, and administrative expenses, excluding commissions, of $15 million, including higher provision for credit losses.

During the three months ended March 31, 2024, respectively, the decrease, as compared to the prior period, was primarily due to:

• lower installation revenue, net of the associated costs and commissions, of $36 million, partially offset by

• lower selling, general and administrative expenses, excluding commissions, of $22 million.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity and capital resources primarily consisted of the following:

(in thousands) September 30, 2023

(in thousands) March 31, 2024

Cash and cash equivalents $ 4,041

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Uncommitted available borrowing capacity under 2020 Receivables Facility

Uncommitted available borrowing capacity under Solar Receivables Facility

Carrying amount of total debt outstanding $ 9,667,701

Carrying amount of total debt outstanding, including finance leases

We expect our ongoing sources of liquidity to include cash generated from operations, borrowings under our credit facilities, 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 including working capital, principal and interest payments on our debt, capital expenditures, potential dividend payments to our stockholders, and from time to time, strategic investments or other initiatives that we may undertake.

Our future cash needs are expected to include cash for operating activities including working capital, principal and interest payments on our debt, capital expenditures, potential dividend payments to our stockholders, potential share repurchases under our Share Repurchase Plan, and from time to time, strategic investments or other initiatives that we may undertake.

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

All of our remaining variable rate debt instruments previously based on LIBOR are now based on SOFR, and we do not anticipate any material impacts from the SOFR transition.

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.

As of September 30, 2023, our next debt maturity will occur in April 2024 with respect to the remaining outstanding balance of $600 million of our First Lien Notes due 2024.

We issued a notice to redeem approximately $500 million of the First Lien Notes due 2024 by the end of 2023 using the remaining net proceeds from the Commercial Divestiture and cash on hand, with the rest to be redeemed in 2024 prior to maturity.

We are closely monitoring the impact of recent developments in the financial markets and banking industry, inflationary pressures, and changes in interest rates on our cash position.

However, we believe our cash position, available borrowing capacity under our credit agreements, 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.

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

Material Cash Requirements

There have been no significant changes to our material cash requirements, commitments and contingencies, or off-balance sheet arrangements from those disclosed in our Amended 2022 Annual Report.

Repurchase of Solar Loans

As of September 30, 2023, the liability related to certain loans provided to customers within our Solar business that we may be required to repurchase from third party lenders was approximately $16 million.

This liability is partially offset by a net receivable of $6 million related to the amount we ultimately expect to recover from any loans required to be repurchased, either through ongoing loan payments from the customer or proceeds from subsequent resale of the loans.

There have been no significant changes to our material cash requirements, commitments and contingencies, or off-balance sheet arrangements from those disclosed in our 2023 Annual Report, except as discussed below.

Share Repurchase Plan

On January 24, 2024, the Company's Board of Directors announced the Share Repurchase Plan (the “Share Repurchase Plan”), pursuant to which the Company is authorized to repurchase, through January 29, 2025, up to a maximum aggregate amount of $350 million of shares of the Company's Common Stock under the Share Repurchase Plan.

As of March 31, 2024, we have approximately $257 million remaining under the Share Repurchase Plan.

ADT Solar Exit

During the three months ended March 31, 2024, we paid $11 million, and we expect to spend an additional $40 million - $60 million, associated with the ADT Solar Exit

Other Contractual Obligations

As discussed in Note 12 “Commitments and Contingencies,” during the three months ended March 31, 2024, we made purchases toward our commitment under the Google Cloud Agreement of $5 million.

In addition, during the three months ended March 31, 2024, purchases toward our commitment to one of our vendors to purchase at least $190 million of security system equipment and components were $43 million.

Long-Term Debt

Significant changes and activity related to our long-term debt since our Amended 2022 Annual Report are discussed below.

Significant changes and activity related to our long-term debt since our 2023 Annual Report are discussed below.

Refer to Note 6 “Debt” for further discussion on our debt agreements and activity.

First Lien Term Loan due 2026

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

Further, during October 2023, we refinanced the remaining outstanding balance of the First Lien Term Loan due 2026 with a new $1,375 million 7-year term loan B due 2030 (the “First Lien Term Loan B due 2030”) through an amendment to the existing First Lien Credit Agreement.

Term Loan A Facility

In March 2023, we borrowed an aggregate principal amount of $600 million of term loans under the Term Loan A Facility, and in June 2023, we borrowed an additional aggregate principal amount of $50 million of Incremental Term Loan A Loans.

ADT Notes due 2023 Redemption

In March 2023, we used the proceeds from the Term Loan A Facility to redeem approximately $600 million of the ADT Notes due 2023 for a total redemption price of approximately $600 million, excluding accrued and unpaid interest.

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

First Lien Notes due 2024 Partial Redemption

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

During 2023, we issued a notice to redeem $500 million principal amount of the outstanding First Lien Notes due 2024 by the end of 2023 using remaining net proceeds from the Commercial Divestiture and cash on hand.

First Lien Credit Agreement

During the three months ended March 31, 2024, we borrowed $95 million and repaid $45 million under the First Lien Revolving Credit Facility.

In April 2024, we amended and restated the First Lien Credit Agreement, which reduced the interest rate on our First Lien Term Loan B due 2030 from Term SOFR +2.50% to Term SOFR +2.25%.

First Lien Notes due 2024 Redemption

In April 2024, we redeemed the remaining outstanding principal balance of $100 million of our First Lien Notes due 2024, excluding accrued and unpaid interest, using proceeds from the First Lien Revolving Credit Facility.

2020 Receivables Facility

In March 2023, we amended the agreement governing the 2020 Receivables Facility, pursuant to which, among other things, the borrowing capacity was increased from $400 million to $500 million and the uncommitted revolving period was extended from May 2023 to March 2024.

During the nine months ended September 30, 2023, we received proceeds of $212 million and repaid $145 million, and as of September 30, 2023, the outstanding balance was $423 million.

In March 2024, we amended the agreement governing the 2020 Receivables Facility, pursuant to which the uncommitted revolving period was extended from March 2024 to April 2024.

As of March 31, 2024, the outstanding balance was $444 million.

In April 2024, we amended the agreement governing the 2020 Receivables Facility, pursuant to which, among other things, the borrowing capacity was increased from $500 million to $550 million and the uncommitted revolving period was extended from April 2024 to April 2025.

Solar Receivables Facility

On August 2, 2023, we entered into the Solar Receivables Facility Financing Agreement to finance receivables generated by the installation of residential solar systems, which, among other things, provides for an uncommitted revolving loan facility in the aggregate principal amount of up to $300 million.

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

As of March 31, 2024, we have not borrowed any amounts under the Solar Receivable Facility, and given the ADT Solar Exit, 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.

Debt Covenants

As of September 30, 2023, we were in compliance with all financial covenant and other maintenance tests for all our debt obligations.

As of March 31, 2024, we were in compliance with all financial covenant and other maintenance tests for all our debt obligations.

We do not believe there is a material risk of future noncompliance with our financial covenant and other maintenance tests.

During the nine months ended September 30, 2023 and 2022, we declared aggregate dividends of $91 million ($0.035 per share) and $90 million ($0.035 per share) on our Common Stock, respectively, and $6 million ($0.035 per share) on our Class B Common Stock during each period.

On November 2, 2023, we announced a dividend of $0.035 per share to holders of Common Stock and Class B Common Stock of record on December 14, 2023, which will be paid on January 9, 2024.

During the three months ended March 31, 2024 and 2023, we declared aggregate dividends of $47 million ($0.055 per share) and $30 million ($0.035 per share) on our Common Stock, respectively, and $3 million ($0.055 per share) and $2 million ($0.035 per share) on our Class B Common Stock, respectively.

On April 25, 2024, we announced a dividend of $0.055 per share to holders of Common Stock and Class B Common Stock of record on June 13, 2024, which will be paid on July 9, 2024.

Cash Flow Analysis

Nine Months Ended September 30,

The amounts and discussion below includes cash flows from both continuing operations and discontinued operations consistent with the presentation on the Statements of Cash Flows for periods prior to the Commercial Divestiture.

Three Months Ended March 31,

(in thousands) 2024 2023 $ Change

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Financing activities $ (74,986) $ (40,628) $ (34,358)

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 decrease in net cash provided by operating activities, as compared to the prior period, was primarily due to:

• an increase in cash interest of $124 million primarily related to our First Lien Term Loan due 2026, and

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

During 2023, we also received approximately $19 million related to a legal settlement and approximately $40 million of the Google Success Funds.

The increase in net cash provided by operating activities, as compared to the prior period, was primarily due to a decrease in cash interest of $54 million primarily related to reduced principal balances on our First Lien Term Loan due 2030 and our ADT Notes due 2024 and lower payroll-related payments, partially offset by results of the Commercial Business included only in the prior period due to the Commercial Divestiture.

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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The decrease in net cash used in investing activities, as compared to the prior period, was primarily due to:

• a decrease in cash paid for dealer generated customer account and bulk account purchases of $115 million primarily related to fewer bulk purchases and lower volume,

• a decrease in subscriber system assets expenditures of $92 million due to fewer adds,

• a decrease in net cash paid of $23 million primarily related to other investments, and

• a decrease in cash paid for the acquisition of businesses, net of cash acquired, of $13 million as a result of activity during the prior year, partially offset by

• a decrease in proceeds from the sale of a business of $27 million due to activity during the prior year.

• a decrease in subscriber system assets expenditures of $19 million due to fewer adds and

• a decrease in purchases of property, plant, and equipment of $19 million.

Cash Flows from Financing Activities

The change in cash flows from financing activities, as compared to the prior period, was primarily due to:

• an increase in net repayments of long-term borrowings of approximately $191 million primarily as a result of the ADT Notes due 2023 Redemption and ADT Notes due 2024 Partial Redemption in 2023, partially offset by borrowings under the Term Loan A Facility in 2023, and

• an increase in net repayments under the 2020 Receivables Facility of $63 million, partially offset by

• proceeds from interest rate swap contracts that included an other-than-insignificant financing element at inception of $59 million during 2023 compared to payments of $27 million during 2022.

The increase in net cash used in financing activities, as compared to the prior period, was primarily due to:

• share repurchases during the current period of $93 million, partially offset by

• an increase in net borrowings on our long-term debt of $46 million primarily related to our First Lien Revolving Credit Facility and

• an increase in proceeds from our interest rate swaps of $8 million.

CRITICAL ACCOUNTING ESTIMATES

We disclosed our critical accounting estimates in our Amended 2022 Annual Report, which include estimates prepared in accordance with GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations.

We disclosed our critical accounting estimates in our 2023 Annual Report, which include estimates prepared in accordance with GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations.

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

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

There were no material changes in our critical accounting estimates since our Amended 2022 Annual Report, except as discussed below:

Goodwill Impairment

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

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

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

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

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

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

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

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

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

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

The fair value of the Solar reporting unit is estimated using the income approach, which includes significant assumptions such as forecasted revenue, Adjusted EBITDA margins, and discount rates, as well as other assumptions including operating expenses and cash flows.

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

Examples of events or circumstances that could reasonably be expected to negatively affect the underlying judgments and factors may include such items as a prolonged downturn in the business environment, changes in economic conditions that significantly differ from the Company’s assumptions in timing or degree, volatility in equity and debt markets resulting in higher discount rates, and unexpected regulatory changes.

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

Refer to Note 7 “Goodwill and Other Intangible Assets” to the condensed consolidated financial statements for further discussion.

There were no material changes in our critical accounting estimates since our 2023 Annual Report.

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains certain information and disclosures that are forward-looking and therefore subject to risks and uncertainties, including those described below.

All statements, other than statements of historical fact, included in this document are, or could be, “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and the applicable rules and regulations of the SEC and are made in reliance on the safe harbor protections provided thereunder.

These forward-looking statements relate to, among other things, planned ADT Solar restructuring activities;

the Commercial Transaction between ADT and GTCR, the expected timetable for realizing expected benefits and synergies of the Commercial Transaction;

This Quarterly Report on Form 10-Q contains certain information that may constitute “forward-looking statements” within the meaning of the U.S.

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

While we have specifically identified certain information as being forward-looking in the context of its presentation, we caution you that all statements contained in this Form 10-Q that are not clearly historical in nature, including statements regarding the ADT Solar restructuring activities and our subsequent announcement related to the ADT Solar Exit;

the Commercial Divestiture;

the expected timetable for realizing expected benefits and synergies of the Commercial Divestiture;

the strategic investment by and long term partnership with State Farm;

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the expected timing of product commercialization with State Farm or any changes thereto, including the ADT home security program for State Farm;

our acquisition of ADT Solar and its anticipated impact on our business and financial condition including the subsequent announcement of planned ADT Solar restructuring activities;

business prospects;

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market conditions;

our ability to successfully respond to the challenges posed by the COVID-19 Pandemic;

our ability to deploy our business continuity and disaster plans and procedures to successfully respond to catastrophic events;

our strategic partnership and ongoing relationship with Google;

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and other matters.

Forward-looking statements are contained principally in the sections of this report titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Without limiting the generality of the preceding sentences, any time the Company uses the words “expects,” “intends,” “will,” “anticipates,” “believes,” “confident,” “continue,” “propose,” “seeks,” “could,” “may,” “should,” “estimates,” “forecasts,” “might,” “goals,” “objectives,” “targets,” “planned,” “projects,” and, in each case, their negative or other various or comparable terminology, and similar expressions, we intend to clearly express that the information deals with possible future events and is forward-looking in nature.

Any stated or implied outcomes with regards to the foregoing are forward-looking.

Without limiting the generality of the preceding sentences, any time we use the words “ expects,” “intends,” “will,” “anticipates,” “believes,” “confident,” “continue,” “propose,” “seeks,” “could,” “may,” “should,” “estimates,” “forecasts,” “might,” “goals,” “objectives,” “targets,” “planned,” “projects,” and, in each case, their negative or other various or comparable terminology, and similar expressions, we intend to clearly express that the information deals with possible future events and is forward-looking in nature.

However, the absence of these words or similar expressions does not mean that a statement is not forward-looking.

These forward-looking statements are based on management’s current beliefs and assumptions and on information currently available to management.

We caution that these statements are subject to risks and uncertainties, many of which are outside of our control, and could cause future events or results to be materially different from those stated or implied in this document, including among others, factors relating to:

• any difficulties with respect to planned ADT Solar restructuring activities, including expenses associated with the separation of certain Solar branches and personnel;

• the effect of the Commercial Transaction and of the announcement of the planned ADT Solar restructuring activities on our ability to retain and hire key personnel and to maintain relationships with customers, suppliers and other business partners;

• risks related to the Commercial Transaction and planned ADT Solar restructuring activities and the possible diversion of management’s attention from ADT’s core CSB business operations;

• uncertainties as to our ability and the amount of time necessary to realize the expected benefits of the Commercial Transaction and planned ADT Solar restructuring activities;

• the achievement of potential benefits of the equity investment by and long-term partnership with State Farm, including as a result of restrictions on or required prior regulatory approval of, various actions by regulated insurers;

• our ability to effectively implement our strategic partnership with, commercialize products with, or utilize the incremental funding committed by State Farm or Google;

However, the absence of these words or similar expressions does not mean that a statement is not forward-looking.

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

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

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

• our ability to effectively implement our strategic partnership with or utilize any of the amounts invested in us by Google;

• continued risks and uncertainties related to the Company’s ability to successfully integrate and operate the ADT Solar business, including the planned ADT Solar restructuring activities;

• risks related to the various financing arrangements, including third party owned arrangements, that the Company facilitates for some ADT Solar customers;

• our ability to continuously and successfully commercialize innovative offerings;

• our ability to successfully implement an Environmental, Social, and Governance program across the Company;

• the impact of supply chain disruptions;

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• our ability to maintain or improve margins through business efficiencies;

• risks related to the restatement of our consolidated financial statements included in our Amended 2022 Annual Report and in our Reports on Form 10-Q/A for the quarters ended September 30, 2022, and March 31, 2023, each as filed with the SEC on July 27, 2023;

• any litigation or investigation related to such restatements;

• the Company’s ability to maintain effective ICFR and disclosure controls and procedures (“DCPs”), including its ability to remediate any existing material weakness in its ICFR and the timing of any such remediation, as well as the ability to reestablish effective DCPs at a reasonable assurance level.

Forward-looking statements and information involve risks, uncertainties, and other factors that could cause actual results to differ materially from those expressed or implied in, or reasonably inferred from, such statements, including without limitation, the risks and uncertainties disclosed or referenced under the heading “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q and Part I, Item 1A in our Amended 2022 Annual Report.

• the other factors that are described under the heading “Risk Factors” in our last Annual Report on Form 10-K for the year ended December 31, 2023.

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

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis