What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-10-24 compared with 2024-08-01 · 110 added, 88 removed, 252 unchanged (44% 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 June 30, 2024, we served approximately 6.4 million security monitoring service subscribers.

As of September 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.

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All intercompany transactions have been eliminated.

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

Results of our Solar and former Commercial businesses are presented within discontinued operations.

Business Updates

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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.

Beginning in the second quarter of 2024, the results of operations and financial position of the Solar Business are classified as discontinued operations 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.

During the three months ended September 30, 2024, aggregate exit charges incurred were not material.

During the nine months ended September 30, 2024, we incurred aggregate exit charges of $88 million, which have been recognized within income (loss) from discontinued operations, net of tax, related to (i) $34 million, associated with the write-down and disposition of inventory and asset impairments, (ii) $29 million, associated with the disposition of the existing installation pipeline, (iii) $13 million, associated with employee separation costs, and (iv) $11 million, associated with contract termination and other charges.

Additionally, during the nine months ended September 30, 2024, we paid approximately $21 million in connection with the ADT Solar Exit, primarily related to employee separation and other restructuring costs.

We do not expect the remaining charges and cash expenditures to be material.

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.

Our 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

As discussed in Note 1 “Description of Business and Summary of Significant Accounting Policies” and Note 3 “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 exclude the Commercial Business.

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.

The Commercial Business is presented as a discontinued operation in the Company’s Condensed Consolidated Statements of Operations for all periods presented.

Additionally, 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 all periods presented.

Our 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 exclude the Commercial Business.

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

FACTORS AFFECTING OPERATING RESULTS

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

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

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.

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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 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.

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

Our results are also 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 believe ADT self set-up customers sold under an outright sales model, which typically have lower monthly recurring fees than our professional installations, 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;

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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.

Hurricanes and other natural disasters may impact certain areas in which we operate and may result in service, sales, and installation disruptions to certain of our customers.

At the end of September 2024, Hurricane Helene made landfall in the southeastern part of the U.S.

We determined there were no material financial or business impacts from Hurricane Helene for the quarter ended September 30, 2024.

Subsequently, at the beginning of October 2024, Hurricane Milton made landfall in Florida.

We are currently evaluating the financial and business impacts Hurricanes Helene and Milton may have on future periods.

KEY PERFORMANCE INDICATORS

We evaluate our results using certain key performance indicators, including operating metrics such as recurring monthly revenue (“RMR”) and gross customer revenue attrition, as well as the non-GAAP measure Adjusted EBITDA.

We evaluate our results using certain key performance indicators, including operating metrics such as recurring monthly revenue and gross customer revenue attrition, as well as the non-GAAP measure Adjusted EBITDA.

Computations of our key performance indicators may not be comparable to other similarly titled measures reported by other companies.

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.

End-of-Period RMR (“RMR”)

End-of-Period Recurring Monthly Revenue (“RMR”)

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

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Gross Customer Revenue Attrition

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

Customer sites are considered canceled when all services are terminated.

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

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

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

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RESULTS OF OPERATIONS

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

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

(in thousands, except as otherwise indicated)

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Key Performance Indicators:

End-of-period RMR

$ 358,881 $ 350,392 $ 8,489 $ 358,881 $ 350,392 $ 8,489

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Refer to the “—Non-GAAP Measures” section for the definition of this term and a reconciliation to the most comparable GAAP measure.

* N/A — Not applicable.

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

* Not applicable.

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

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

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• 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, remained flat and included higher non-payment disconnects offset by a decrease in voluntary and other disconnects as well as relocations.

(i) an increase in installation revenue of $29 million and $38 million, respectively, primarily driven by a higher volume of sales transactions with new customers under the outright sales model, as well as (ii) an increase in the amortization of deferred subscriber acquisition revenue of $11 million and $37 million, respectively, associated with customers under the Company-owned 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 as well as the impact of customer accounts purchased from a third party.

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

Cost of Revenue

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.

During the three and nine months ended September 30, 2024, cost of revenue, as compared to the prior period, reflects an increase in installation and product costs of $28 million and $38 million, respectively, primarily due to a higher volume of outright sales transactions, as well as an increase in monitoring and related service costs during the nine months ended September 30, 2024 of $8 million, primarily due to higher interactive fees and other customer service initiatives.

Selling, General, and Administrative Expenses

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.

During the three months ended September 30, 2024, as compared to the prior period, SG&A remained relatively flat, and included increased investments in technology, partially offset by improved cost efficiencies.

The increase in SG&A during the nine months ended September 30, 2024, as compared to the prior period, was primarily driven by:

• an increase in general and administrative costs of $48 million, which includes a current year charge and prior year credit related to legal settlements in an aggregate amount of approximately $35 million,

• an increase in the allowance for credit losses of $37 million, as a result of an increase in customer delinquencies, and

• an increase in selling costs of $26 million, primarily related to the amortization of deferred subscriber acquisition costs.

Depreciation and Intangible Asset Amortization

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.

During the three months ended September 30, 2024, as compared to the prior period, depreciation and intangible asset amortization remained relatively flat.

During the nine months ended September 30, 2024, as compared to the prior period, depreciation and intangible asset amortization reflects a decrease in the amortization of customer relationship intangible assets of $33 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 $23 million.

Merger, Restructuring, Integration, and other

During the three and nine months ended September 30, 2024, merger, restructuring, integration, and other decreased $8 million and $17 million, respectively, primarily due to third-party strategic optimization costs incurred during the prior period.

Interest Expense, Net

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.

During the three months ended September 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 $74 million on our interest rate swaps, partially offset by

• lower interest expense of $38 million primarily related to lower principal amounts outstanding on our First Lien Term Loan B and the redemption of our Term Loan A Facility and First Lien Notes due 2024 and,

• a non-recurring expense of $25 million recorded during the third quarter of 2023 associated with the reclassification from AOCI of historical losses related to certain interest rate swaps for which cash flows were probable of not occurring as a result of the partial redemption of our First Lien Term Loan B.

During the nine months ended September 30, 2024, the decrease in interest expense, net, as compared to the prior year period, was primarily driven by:

• lower interest expense of $103 million primarily related to lower principal amounts outstanding on our First Lien Term Loan B and the redemption of our Term Loan A Facility and First Lien Notes due 2024, as well as

• a non-recurring expense of $25 million as discussed above, partially offset by

• a decrease in net unrealized gains of $85 million on our interest rate swaps.

Other Income (Expense)

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.

During the three and nine months ended September 30, 2024, the increases in other income (expense), as compared to the prior periods, was primarily due to income received under the Commercial TSA of $14 million and $36 million, respectively.

Income Tax Benefit (Expense)

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%.

During the three months ended September 30, 2024, income tax expense was $50 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 6.2%, and an unfavorable impact from unrecognized tax benefits of 4.0%, partially offset by a favorable impact from a prior year tax return adjustment of 4.0%.

During the three months ended September 30, 2023, income tax expense was $34 million, resulting in an effective tax rate for the period of 21.5%.

The effective tax rate primarily represents the federal statutory tax rate of 21.0%, and a state tax rate, net of federal benefits, of 5.1%, partially offset by favorable impacts from dispositions of 3.1% and prior year tax return adjustments of 1.2%.

During the nine months ended September 30, 2024, income tax expense was $167 million, resulting in an effective tax rate for the period of 28.3%.

This primarily represents the federal statutory tax rate of 21.0%, a state tax rate, net of federal benefits, of 5.8%, unfavorable impacts from dispositions of 1.6%, and unrecognized tax benefits of 0.8%, partially offset by a favorable impact from a prior year tax return adjustment of 1.2%.

During the nine months ended September 30, 2023, income tax expense was $120 million, resulting in an effective tax rate for the period of 25.5%.

The effective tax rate primarily represents the federal statutory tax rate of 21.0%, a state tax rate, net of federal benefits, of 5.8%, and an unfavorable impact from permanent non-deductible items of 1.2%, partially offset by a favorable impact from dispositions of 1.0%.

Deferred Tax Assets

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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.

We expect 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

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

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

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

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

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________________

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

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

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 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 $60 million, including negative impacts from legal settlements of $40 million and higher provision for credit losses of $30 million.

During the three months ended September 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 approximately $20 million, and

• improved cost efficiencies, including the benefit of $14 million of TSA income, partially offset by increased investments in technology.

During the nine months ended September 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 approximately $81 million, and

• higher other income of $51 million, which primarily includes $36 million of TSA income, partially offset by

• higher selling, general, and administrative expenses, excluding commissions of $68 million, associated with negative impacts from legal settlements of $35 million, higher provision for credit losses of $37 million, and increased investments in technology, partially offset by improved cost efficiencies.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity and capital resources primarily consisted of the following:

(in thousands) June 30, 2024

(in thousands) September 30, 2024

Cash and cash equivalents $ 95,338

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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.

On January 24, 2024, our Board of Directors announced the Share Repurchase Plan (the “Share Repurchase Plan”), pursuant to which we are 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 September 30, 2024, we have approximately $257 million remaining under the Share Repurchase Plan.

Subsequent event - In October 2024, we repurchased 5 million shares of Common Stock at a price per share of $6.40 for an aggregate purchase price of $32 million.

As a result, we have approximately $225 million remaining under the Share Repurchase Plan.

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.

During the nine months ended September 30, 2024, we paid approximately $21 million associated with the ADT Solar Exit.

We do not expect the remaining cash expenditures to be material.

Other Contractual Obligations

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.

As discussed in Note 11 “Commitments and Contingencies,” during the three and nine months ended September 30, 2024, we made purchases toward our $200 million commitment under the Google Cloud Agreement Addendum of $9 million and $19 million, respectively.

In addition, during the three and nine months ended September 30, 2024, purchases toward our commitment to one of our vendors to purchase at least $320 million of security system equipment and components were approximately $44 million and $144 million, respectively.

Long-Term Debt

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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 May 2024, we amended and restated the First Lien Credit Agreement, which included the exchange of $143 million principal amount of loans under our 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.

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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.

During the nine months ended September 30, 2024, we borrowed $325 million and repaid $325 million under the First Lien Revolving Credit Facility.

Subsequent event - In October 2024, we amended and restated the First Lien Credit Agreement to extend the maturity date of the First Lien Revolving Credit Facility to October 2029 (as extended, the “Extended First Lien Revolving Credit Facility”), subject to a springing maturity of 91 days prior to the maturity date of certain long-term indebtedness, and obtain an additional $225 million of Extended First Lien Revolving Credit Facility commitments.

After giving effect to the amendment, the aggregate amount of commitments under the Extended First Lien Revolving Credit Facility is $800 million.

Borrowings under the Extended First Lien Revolving Credit Facility bear interest at a rate equal to either (a) Term SOFR with a floor of zero or (b) a base rate (“Base Rate”) determined by reference to the highest of (i) the federal funds rate plus 0.50% per annum, (ii) the rate of interest per annum last quoted by The Wall Street Journal as the “Prime Rate” in the United States and (iii) the one-month adjusted term SOFR plus 1.00% per annum, in each case, plus an applicable margin of 2.00% per annum for Term SOFR loans and 1.00% per annum for Base Rate loans, subject to two step-downs based on certain specified net first lien leverage ratios.

In addition, the amendment reduced the commitment fee in respect of the Extended First Lien Revolving Credit Facility to 0.30% per annum in respect of the unutilized commitments thereunder, subject to two step-downs based on certain specified net first lien leverage ratios.

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.

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

In addition, later that month, we redeemed the remaining outstanding principal balance of $474 million of our 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.

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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.

As of September 30, 2024, the outstanding balance was $423 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 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.

During August 2024, the Solar Receivables Facility’s uncommitted revolving period expired.

We did not borrow any amounts under the Solar Receivables Facility prior to its expiration.

Debt Covenants

As of June 30, 2024, we were in compliance with all financial covenant and other maintenance tests for all our debt obligations.

As of September 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 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.

During the nine months ended September 30, 2024 and 2023, we declared aggregate dividends of $141 million ($0.055 per share per quarter) and $91 million ($0.035 per share per quarter) on our Common Stock, respectively, and $9 million ($0.055 per share per quarter) and $6 million ($0.035 per share per quarter) on our Class B Common Stock, respectively.

On October 24, 2024, we announced a dividend of $0.055 per share to holders of Common Stock and Class B Common Stock of record on December 12, 2024, which will be paid on January 9, 2025.

Cash Flow Analysis

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,

Nine Months Ended September 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 $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 increase in net cash provided by operating activities, as compared to the prior period, was primarily due to a decrease in cash interest of $130 million primarily related to reduced principal balances on our debt, the benefit of lower outflows in the current year related to our Solar business, improved operating performance, and lower employee-related payments.

increase was partially offset by the benefit received in the prior period associated with the results of the former Commercial Business as well as legal settlements during the current and 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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Cash Flows from Investing Activities

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 $36 million due to fewer adds partially offset by

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

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

• an increase in dealer generated customer accounts and bulk account purchases of $88 million primarily due to higher bulk account purchases from a third party, and

• a $21 million payment associated with the settlement of post-closing adjustments related to the sale of the former Commercial Business, partially offset by

• a decrease in subscriber system assets expenditures of $74 million primarily due to a higher volume of outright sales and fewer customer additions.

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,

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

• an increase in net repayments on our 2020 Receivables Facility of $80 million, partially offset by

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

• a decrease in net repayments on our long-term debt of $122 million primarily related to higher redemptions during the prior period.

CRITICAL ACCOUNTING ESTIMATES

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CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS

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

This Quarterly Report on Form 10-Q contains certain information that may constitute “forward-looking statements” within the meaning of the 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 Exit and the expected costs and benefits of such exit;

the Commercial Divestiture;

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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 to reduce debt or improve leverage ratios, or to achieve or maintain its long-term leverage goals;

repurchases of shares of the Company’s common stock under the authorized share repurchase program, 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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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.

Without limiting the generality of the preceding sentences, any time we use the words “ongoing,” “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.

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• any material changes to the valuation allowances we take with respect to our deferred tax assets;

• the impact of potential information technology, cybersecurity, or data security breaches;

• the impact of information technology, cybersecurity, or data security breaches, including the incidents disclosed in the Current Reports on Form 8-K filed with the SEC on August 8, 2024 (the “August Incident”) and October 7, 2024 (the “October Incident” and together with the August Incident, the “Cybersecurity Incidents”);

• the Company's ongoing assessments of the impacts of the Cybersecurity Incidents;

the Company's expectations regarding its ability to contain and remediate the Cybersecurity Incidents and to effectively implement counter measures intended to safeguard the Company’s information technology assets and operations; the impact of the Cybersecurity Incidents on the Company's relationships with customers, employees and regulators; the Company’s ability to coordinate effectively with its third party business partner to address the October Incident;

legal, reputational and financial risks resulting from the Cybersecurity Incidents; and that any future, or still undetected, cybersecurity

related incident, whether an attack, disruption, intrusion, denial of service, theft or other breach, including any such incident related to or arising from ADT’s business partners or other third parties, could result in unauthorized access to, or disclosure of, data, resulting in claims, costs and reputational harm that could negatively affect our actual results of operations or financial condition;

• our dependence on third-party providers, suppliers, and dealers to enable us to produce and distribute our products and services in a cost-effective manner that protects our brand;

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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