What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-01 compared with 2024-04-25 · 109 added, 116 removed, 231 unchanged (49% of the section changed)

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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.

As of June 30, 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

We report financial and operating information for our two segments:

CSB and Solar.

As a result of the Commercial Divestiture and ADT Solar Exit, we currently report our results as a single operating and reportable segment, which reflects the business operations of our former CSB segment.

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 in accordance with GAAP, excluding any non-GAAP measures, and includes the accounts of ADT Inc.

and its wholly-owned subsidiaries.

All intercompany transactions have been eliminated.

Results of the Company’s Solar and former Commercial businesses are presented within discontinued operations.

Business Updates

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.

As discussed in Note 1 “Description of Business and Summary of Significant Accounting Policies” and Note 3 “Divestitures,” in January 2024, the Board approved a plan to fully exit the Solar Business.

The results of operations and financial position of the Solar Business are classified as a discontinued operation in the Company’s Condensed Consolidated Statements of Operations and Condensed Consolidated Balance Sheets, respectively, for all periods presented.

Additionally, the cash flows and comprehensive income (loss) of the Solar 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.

During the three and six months ended June 30, 2024, we incurred aggregate exit charges of $13 million and $89 million, respectively, which have been recognized within income (loss) from discontinued operations, net of tax, related to (i) $1 million and $36 million, respectively, associated with the write-down and disposition of inventory and asset impairments, (ii) $10 million and $29 million, respectively, associated with the disposition of the existing installation pipeline, (iii) $1 million and $12 million, respectively, associated with employee separation costs, and (iv) $2 million and $12 million, respectively, associated with contract termination and other charges..

We do not expect the remaining charges associated with the ADT Solar Exit to be material.

Additionally, during the six months ended June 30, 2024, we paid $18 million, primarily related to employee separation and other restructuring costs, and we may spend an additional $30 million - $50 million associated with expenditures related to the ADT Solar Exit.

The estimated charges and cash expenditures resulting from the ADT Solar Exit could change materially due to various factors including unknown or unforeseen costs.

The Company’s reported operating metrics, gross customer revenue attrition and recurring monthly revenue (as defined and discussed below), were not impacted by the ADT Solar Exit.

Commercial Divestiture

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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

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

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.

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

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 approximately two years.

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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.

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 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;

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 well as the mix, price, and type of offerings sold.

Beginning in the second quarter of 2024, a growing number of our direct channel new customer adds are outright sales.

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 continue 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 an increase in the number of ADT self set-up customers sold under an outright sales model, which typically have lower monthly recurring fees than our professional installations, but we believe these customers 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, but not limited to, (i) offering a wider variety of products and services;

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

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

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.

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 leveraging technology, 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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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 CSB customers, including contracts monitored but not owned.

End-of-Period RMR (“RMR”)

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

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 self-setup/DIY customers.

Customer sites are considered canceled when all services are terminated.

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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 self-setup/DIY customers.

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

We use gross customer revenue attrition to evaluate our 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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RESULTS OF OPERATIONS

Three Months Ended March 31,

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

(in thousands, except as otherwise indicated)

2024 2023 $ Change

2024 2023 $ Change 2024 2023 $ Change

Monitoring and related services $ 1,068,065 $ 1,043,255 $ 24,810 $ 2,130,717 $ 2,071,888 $ 58,829

Security installation, product, and other 136,494 124,822 11,672 263,514 228,665 34,849

Solar installation, product, and other 19,639 144,835 (125,196)

Total revenue 1,204,559 1,168,077 36,482 2,394,231 2,300,553 93,678

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Security installation, product, and other 45,042 45,222 (180) 84,634 75,058 9,576

Solar installation, product, and other 41,522 98,344 (56,822)

Total cost of revenue 196,234 187,710 8,524 390,539 379,334 11,205

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Merger, restructuring, integration, and other 1,851 8,325 (6,474) 13,504 22,624 (9,120)

Goodwill impairment — 241,630 (241,630)

Operating income (loss) 284,175 332,098 (47,923) 576,324 565,058 11,266

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Key Performance Indicators:

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

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

End-of-period RMR

$ 355,179 $ 347,567 $ 7,612 $ 355,179 $ 347,567 $ 7,612

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

Adjusted EBITDA (2)

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* N/A — Not applicable.

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.

• 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 :

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

During the three and six months ended June 30, 2024, revenue, as compared to the prior periods, primarily reflects:

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

higher recurring revenue of $25 million and $59 million, respectively, primarily driven by an increase in average prices.

• Security installation, product, and other :

(i) an increase in the amortization of deferred subscriber acquisition revenue of $13 million and $26 million, respectively, associated with customers under a Company-owned model, as well as (ii) an increase in installation revenue of $9 million for the six months ended June 30, 2024, 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.

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.

Gross customer revenue attrition, as compared to the prior period, remained flat and included higher non-payment disconnects offset by a decrease in voluntary and other disconnects as well as 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.

During the three months ended June 30, 2024, cost of revenue, as compared to the prior period, reflects an increase in monitoring and related service costs of $9 million primarily due to higher interactive fees and other customer service initiatives.

During the six months ended June 30, 2024, cost of revenue, as compared to the prior period, reflects an increase in installation costs of $10 million primarily due to a higher volume of outright sales transactions.

Selling, General, and Administrative Expenses

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.

The increase in SG&A during the three and six months ended June 30, 2024, respectively, as compared to the prior period, was primarily driven by:

• an increase in general and administrative costs of $28 million and $35 million, which includes a current year charge and prior year credit related to legal settlements in an aggregate amount of approximately $40 million,

• an increase in the allowance for credit losses of $20 million and $30 million, as a result of an increase in customer delinquencies,

• an increase in share-based compensation costs of $13 million and $8 million, primarily due to certain award modifications and

• an increase in selling costs of $8 million and $21 million, primarily related to the amortization of deferred subscriber acquisition costs and commissions.

Depreciation and Intangible Asset Amortization

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 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 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.

During the three months ended June 30, 2024, the increase in depreciation and intangible asset amortization, as compared to the prior period, was primarily driven by increases related to acquired customer contracts and subscriber system assets of $6 million and $4 million, respectively.

During the six months ended June 30, 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 and subscriber system assets of $13 million and $5 million, respectively.

Interest Expense, Net

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.

During the three months ended June 30, 2024, the increase in interest expense, net, as compared to the prior year period, was primarily driven by a decrease in net unrealized gains of $60 million on our interest rate swaps, partially offset by lower interest expense primarily related to lower principal amounts outstanding on our First Lien Term Loan B due 2030 and our ADT Notes due 2024.

During the six months ended June 30, 2024, the decrease in interest expense, net, as compared to the prior year period, was primarily driven by lower interest expense primarily related to lower principal amounts outstanding on our First Lien Term Loan B due 2030 and our ADT Notes due 2024, partially offset by a decrease in net unrealized gains of $10 million on our interest rate swaps.

Other Income (Expense)

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.

During the three and six months ended June 30, 2024, the increases in other income (expense), as compared to the prior periods, was primarily due to income received under the Commercial TSA.

Income Tax Benefit (Expense)

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.

During the three months ended June 30, 2024, income tax expense was $60 million, resulting in an effective tax rate for the period of 32.2%.

This primarily represents the federal statutory tax rate of 21.0%, a state tax rate, net of federal benefits, of 5.9%, and an unfavorable impact from dispositions of 5.0%.

During the three months ended June 30, 2023 income tax expense was $67 million, resulting in an effective tax rate for the period of 26.9% This primarily represents the federal statutory tax rate of 21.0% and a state tax rate, and net of federal benefits, of 5.0%.

During the six months ended June 30, 2024, income tax expense was $116 million, resulting in an effective tax rate for the period of 28.6%.

This primarily represents the federal statutory tax rate of 21.0%, a state tax rate, net of federal benefits, of 5.6%, and an unfavorable impact from dispositions of 2.3%.

During the six months ended June 30, 2023, income tax expense was $86 million, resulting in an effective tax rate for the period of 27.6%.

This primarily represents the federal statutory tax rate of 21.0%, a state tax rate, net of federal benefits, of 6.1%, an unfavorable impact from permanent non-deductible items of 1.5%, partially offset by favorable impacts from federal tax credits of 1.0%.

Deferred Tax Assets

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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.

Net Operating Losses

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 2025 depending on future losses generated by the business, specifically with regard to the ADT Solar Exit.

NON-GAAP MEASURES

To provide investors with additional information in connection with our results as determined in accordance with GAAP, we disclose Adjusted EBITDA as a non-GAAP measure.

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.

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

Adjusted EBITDA

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

Three Months Ended March 31,

(in thousands) 2024 2023 $ Change

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

(in thousands) 2024 2023 $ Change 2024 2023 $ Change

Income (loss) from continuing operations

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1,851 8,325 (6,474) 13,504 22,624 (9,120)

Goodwill impairment (2)

— 241,630 (241,630)

Other solar exits costs (3)

38,370 — 38,370

Other, net (1)

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________________

(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 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 March 31,

(in thousands) 2024 2023 $ Change

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

Solar (23,501) (10,545) (12,956)

Adjusted EBITDA (from continuing operations)

$ 614,190 $ 579,486 $ 34,704

(1) During 2024, primarily includes unrealized (gains) / losses on interest rate swaps presented within other income (expense) and loss on extinguishment of debt.

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

During the three months ended June 30, 2024 the decrease in Adjusted EBITDA, as compared to the prior period, was primarily due to:

• higher selling, general, and administrative expenses, excluding commissions, of $45 million including negative impacts from legal settlements of $40 million and higher provision for credit losses of $20 million, partially offset by

• higher M&S Revenue, net of the associated costs, of $18 million and

• higher other income of $15 million, including TSA income.

During the six months ended June 30, 2024, the increase in Adjusted EBITDA, as compared to the prior period, was primarily due to:

• higher M&S Revenue, net of the associated costs, of $62 million,

• higher other income of $32 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.

• higher selling, general, and administrative expenses, excluding commissions, of $60 million, including negative impacts from legal settlements of $40 million and higher provision for credit losses of $30 million.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity and capital resources primarily consisted of the following:

(in thousands) March 31, 2024

(in thousands) June 30, 2024

Cash and cash equivalents $ 37,883

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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, 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.

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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.

On January 24, 2024, our 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 our Common Stock under the Share Repurchase Plan.

As of June 30, 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

During the six months ended June 30, 2024, we paid $18 million, and we may spend an additional $30 million - $50 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.

As discussed in Note 11 “Commitments and Contingencies,” during the six months ended June 30, 2024, we made purchases toward our $200 million commitment under the Google Cloud Agreement Addendum of $10 million.

In addition, during the six months ended June 30, 2024, purchases toward our commitment to one of our vendors to purchase at least $320 million of security system equipment and components were $100 million.

Long-Term Debt

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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%.

In May 2024, we amended and restated the First Lien Credit Agreement, which included the exchange of $143 million principal amount of loans under the Company’s Term Loan A Facility for its First Lien Term Loan B due 2030.

In addition, later that month, we further amended and restated the First Lien Credit Agreement, pursuant to which we incurred an additional $474 million of outstanding principal under the First Lien Term B Loan due 2030 and used the proceeds used to pay off the remaining outstanding balance of the Term Loan A Facility.

Proceeds and repayments of long-term borrowings include the impact of $646 million from the amendments described above.

In addition, loss on extinguishment of debt and financing and consent fees were not material as a result of these amendments.

During the six months ended June 30, 2024, we borrowed $260 million and repaid $260 million under the First Lien Revolving Credit Facility.

Term Loan A Facility Redemption

In May 2024 the Company exchanged $143 million of loans under its Term Loan A Facility for its First Lien Term Loan B due 2030, as discussed above.

In addition, later that month, the Company redeemed the remaining outstanding principal balance of $474 million of its Term Loan A Facility, excluding accrued and unpaid interest, using proceeds under the First Lien Term Loan B due 2030, as discussed above.

As a result, the Term Loan A Facility has been terminated.

First Lien Notes due 2024 Redemption

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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.

In April 2024, we further 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.

In addition, proceeds and repayments of long-term borrowings include the impact of $32 million from the amendments described above.

As of June 30, 2024, the outstanding balance was $424 million.

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 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.

As of June 30, 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.

Debt Covenants

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

As of June 30, 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 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.

During the six months ended June 30, 2024 and 2023, we declared aggregate dividends of $94 million ($0.055 per share) and $61 million ($0.035 per share) on our Common Stock, respectively, and $6 million ($0.055 per share) and $4 million ($0.035 per share) on our Class B Common Stock, respectively.

On August 1, 2024, we announced a dividend of $0.055 per share to holders of Common Stock and Class B Common Stock of record on September 13, 2024, which will be paid on October 4, 2024.

Cash Flow Analysis

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,

The amounts and discussion below include cash flows from both continuing operations and discontinued operations, as appropriate, consistent with the presentation on the Statements of Cash Flows.

Six Months Ended June 30,

(in thousands) 2024 2023 $ Change

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Cash Flows from Operating Activities

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 increase in net cash provided by operating activities, as compared to the prior period, was primarily due to a decrease in cash interest of $98 million primarily related to reduced principal balances on our debt, lower employee-related payments, and the benefit of lower outflows in the current year related to our Solar business.

This increase was partially offset by the results of the former Commercial business and proceeds from a legal settlement received in the prior period.

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 subscriber system assets expenditures of $19 million due to fewer adds and

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

• a decrease in subscriber system assets expenditures of $36 million due to fewer adds partially offset by

• an increase in dealer generated customer accounts and bulk account purchases of $8 million.

Cash Flows from Financing Activities

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.

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

• an increase in net repayments on our 2020 Receivables Facility of $60 million, partially offset by

• a decrease in net repayments on our long-term debt of $111 million.

CRITICAL ACCOUNTING ESTIMATES

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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;

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 ADT’s exit of the residential solar business and the expected costs and benefits of such exit;

the Commercial Divestiture;

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

the expected timetable for realizing expected benefits and synergies of the Commercial Divestiture and ADT Solar Exit including that the costs of the ADT Solar Exit may exceed our best estimates;

the integration of strategic bulk purchases of customer accounts;

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

anticipated financial performance, including the Company’s ability to achieve its stated guidance metrics and its progress toward its medium-term targets;

anticipated financial performance, including the Company’s ability to achieve its stated guidance metrics and to reduce debt or improve leverage ratios, or to achieve or maintain its long-term leverage goals;

management’s plans and objectives for future operations;

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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:

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• our ability to maintain and grow our existing customer base;

• our ability to sell our products and services or launch new products and services in highly competitive markets, including the home security and automation market and the solar market, and to achieve market acceptance with acceptable margins;

• our ability to sell our products and services or launch new products and services in highly competitive markets, including the home security and automation market, and to achieve market acceptance with acceptable margins;

• our ability to successfully upgrade obsolete equipment installed at our customers’ premises in an efficient and cost-effective manner;

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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