ADT Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Table of Contents • Introduction • Business and Basis of Presentation • Factors Affecting Operating Results • Key Performance Indicators • Results of Operations • Non-GAAP Measures • Liquidity and Capital Resources • Critical Accounting Estimates • Cautionary Statements Regarding Forward-Looking Statements INTRODUCTION The following section contains forward-looking statements about our business, operations, and financial performance based on current plans and estimates that involve risks, uncertainties, and assumptions, which could differ materially from actual results. Factors that could cause such differences are discussed in the sections of this Quarterly Report on Form 10-Q titled “Cautionary Statements Regarding Forward-Looking Statements” and Item 1A “Risk Factors.” The discussion and analysis below focuses on significant or material items to the Company. To obtain a more comprehensive understanding of our financial condition, changes in financial condition, and results of operations, the following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements and the related notes included in our 2024 Annual Report. BUSINESS AND BASIS OF PRESENTATION Our Business ADT (or “we,” “our,” and “us”), provides security, interactive, and smart home solutions to consumer and small business customers in the U.S. Our mission is to empower people to protect and connect what matters most with safe, smart, and sustainable solutions, delivered through innovative offerings, unrivaled safety, and a premium experience because we believe that everyone deserves to feel safe. Basis of Presentation We report our results as a single operating and reportable segment. All financial information presented in this section has been prepared in U.S. 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 our former Solar and Commercial businesses are presented within discontinued operations for current and historical periods, as applicable. FACTORS AFFECTING OPERATING RESULTS 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. 27 As of March 31, 2025, we served approximately 6.4 million security monitoring service subscribers. Generally, a significant upfront investment is required to acquire new subscribers that in turn provide ongoing and predictable recurring revenue generated from our monitoring services and other subscriber-based offerings. Although the economics of an installation may vary depending on the customer type, acquisition channel, and product offering, we generally achieve revenue break-even in approximately two years. Our results are impacted by the mix of transactions accounted for 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. Historically, the majority of professional installation transactions took place under a Company-owned model. However, beginning in the second quarter of 2024, a growing number of our direct channel new customer adds are outright sales in connection with the national launch of our new ADT+ platform. We expect outright sales to be an increasing proportion of our transactions as we continue to roll out ADT+, build our partnership with Google, introduce new or enhance our current offerings, and refine our go-to-market approach. In addition, the mix, price, and type of offerings sold may impact our results. For example, the volume of self set-up solutions may impact our results in future periods, as these solutions typically earn lower contractual fees than our professional installation solutions as a result of differences in pricing, offer tactics, and level of services in each channel. New customer additions and customer attrition have a direct impact on our financial results, including revenue, operating income, and cash flows. A portion of our recurring customer base can be expected to cancel its service each year for a variety of reasons, including relocation, cost, loss to competition, or service issues. Relocations are sensitive to changes in the residential housing market, and fewer relocations generally lead to improvements in gross customer revenue attrition, but fewer new customer additions. Additionally, non-payment disconnects generally increase in a weaker macroeconomic environment. We may experience fluctuations in these or other trends in the future as changes in the general macroeconomic environment or housing market develop. We may experience an increase in costs associated with factors such as (i) offering a wider variety of products and services; (ii) providing a greater mix of interactive and smart home solutions; (iii) replacing or upgrading certain system components or technology due to technological advancements, cybersecurity upgrades, or otherwise; (iv) supply chain disruptions or other impacts such as tariffs or trade restrictions; (v) inflationary pressures on costs such as materials, labor, and fuel; and (vi) other changes in prices, interest rates, or terms from our suppliers, vendors, or third-party lenders. We are currently monitoring, and will continue to monitor, macroeconomic trends and uncertainties such as key components of inflation, the status and effects of recently implemented or threatened tariffs and other trade restrictions, as well as potential changes to these tariffs or the imposition of reciprocal or other tariffs or trade restrictions by other countries. Any of these may have negative consequences for our supply chain due to price increases from our vendors or suppliers. At this time, we do not anticipate material negative impacts that cannot be mitigated through arrangements with our vendors and suppliers, price increases to our customers, or other actions but there is no guarantee that we will be able to successfully mitigate the negative effects of any such macroeconomic trends and uncertainties. We are also unable at this time to determine any future negative impacts from reduced consumer spending as a result of inflationary or other pressures or uncertainty that may result from the imposition of current or future tariffs or other trade restrictions. 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 cost-saving opportunities, as well as price increases to our customers. In addition, hurricanes, wildfires, and other natural disasters impacting certain areas in which we operate may result in service, sales, and installation disruptions to certain of our customers. As such, we evaluate the financial and business impacts these events have or may have in the future. During the three months ended March 31, 2025, we did not experience any material losses related to natural disasters. Other Tax Matters In connection with the March 2025 Apollo secondary offering (as discussed in Note 14 “Related Party Transactions”) and our share repurchase program, an ownership change (as defined under Sections 382 and 383 of the IRC) may occur during 2025. An ownership change imposes annual limitations on a corporation’s ability to utilize its tax attributes to offset future U.S. taxable income. Generally, an ownership change (as defined under Sections 382 and 383 of the IRC) occurs when the aggregate ownership of certain shareholders increases by more than 50 percentage points in total over a rolling three-year period. 28 Based on our analysis, we do not anticipate that a potential ownership change in 2025 will have a material adverse effect on our 2025 financial statements. However, future adverse impacts may arise due to the limitations associated with an ownership change occurring in the current year. KEY PERFORMANCE INDICATORS 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 measures Adjusted Earnings per Share (“Adjusted EPS”) and Adjusted EBITDA, both from continuing operations. 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 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. We use RMR to evaluate our overall sales, installation, and retention performance. Additionally, we believe the presentation of RMR is useful to investors because it measures the volume of revenue under contract at a given point in time, which is useful for forecasting future revenue performance as the majority of our revenue comes from recurring sources. 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 set-up/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 set-up/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. 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. Adjusted EPS Adjusted EPS is a non-GAAP measure. Our definition of Adjusted EPS, a reconciliation of Adjusted EPS to diluted income (loss) from continuing operations per share (the most comparable GAAP measure), and additional information, including a description of the limitations relating to the use of Adjusted EPS, are provided under “Results of Operations—Non-GAAP Measures.” Adjusted EBITDA Adjusted EBITDA is a non-GAAP measure. Our definition of Adjusted EBITDA, a reconciliation of Adjusted EBITDA to income (loss) from continuing operations (the most comparable GAAP measure), and additional information, including a description of the limitations relating to the use of Adjusted EBITDA, are provided under “Results of Operations—Non-GAAP Measures.” 29 RESULTS OF OPERATIONS Three Months Ended March 31, (in thousands, except per share data or as otherwise indicated) 2025 2024 $ Change Revenue: Monitoring and related services $ 1,083,104 $ 1,062,652 $ 20,452 Security installation, product, and other 184,387 127,020 57,367 Total revenue 1,267,491 1,189,672 77,819 Cost of revenue (exclusive of depreciation and amortization shown separately below) : Monitoring and related services 157,850 154,713 3,137 Security installation, product, and other 82,272 39,592 42,680 Total cost of revenue 240,122 194,305 45,817 Selling, general, and administrative expenses 368,600 370,216 (1,616) Depreciation and intangible asset amortization 339,517 333,002 6,515 Operating income (loss) 319,252 292,149 27,103 Interest expense, net (120,879) (87,450) (33,429) Other income (expense) (4,864) 15,622 (20,486) Income (loss) from continuing operations before income taxes 193,509 220,321 (26,812) Income tax benefit (expense) (51,032) (56,430) 5,398 Income (loss) from continuing operations 142,477 163,891 (21,414) Income (loss) from discontinued operations, net of tax (2,231) (72,340) 70,109 Net income (loss) $ 140,246 $ 91,551 $ 48,695 Diluted income (loss) from continuing operations per share of Common Stock $ 0.16 $ 0.17 $ (0.01) Diluted weighted-average shares outstanding of Common Stock 871,312 918,394 (47,082) Key Performance Indicators: (1) RMR $ 359,534 $ 353,274 $ 6,260 Gross customer revenue attrition (percent) 12.6% 13.1% N/A* Adjusted EPS (2) $ 0.21 $ 0.19 $ 0.02 Adjusted EBITDA (2) $ 660,801 $ 637,691 $ 23,110 _______________________ (1) Refer to the “—Key Performance Indicators” section for the definitions of these key performance indicators. (2) Refer to the “—Non-GAAP Measures” section for the definitions of these non-GAAP measures and reconciliations to the most comparable GAAP measures. * Not applicable. Revenue The three months ended March 31, 2025, as compared to the prior year period, primarily reflects: • Monitoring and related services revenue (“M&S Revenue”) : higher recurring revenue of $16 million primarily driven by an increase in average prices, partially offset by lower volume. • Security installation, product, and other revenue : higher installation revenue of $52 million primarily driven by a higher mix of professionally installed systems under the outright sales model at higher average prices in connection with the transition to our ADT+ platform. The increase in RMR, as compared to the prior year period, was primarily driven by an increase in average prices on new and existing subscribers, partially offset by lower volume. Gross customer revenue attrition, as compared to the prior year period, decreased due to a reduction in voluntary and other disconnects partially offset by higher non-payment disconnects. 30 Cost of Revenue The three months ended March 31, 2025, as compared to the prior year period, primarily reflects: • Monitoring and related services costs (“M&S Costs”): an increase in customer service costs of $3 million, primarily due to higher interactive fees partially offset by lower maintenance costs. • Security installation, product, and other costs : an increase in installation and product costs of $43 million primarily due to a higher mix of professionally installed outright sales transactions. Selling, General, and Administrative Expenses The three months ended March 31, 2025, as compared to the prior year period, was flat and primarily reflects: • a decrease in general and administrative costs of $16 million primarily as a result of cost savings initiatives and • a decrease in advertising costs of $6 million as a result of lower media spend, partially offset by • an increase in the allowance for credit losses of $17 million primarily as a result of an increase in revenue and customer delinquencies and • an increase in share-based compensation of $12 million due to the modification of certain awards. Depreciation and Intangible Asset Amortization The three months ended March 31, 2025, as compared to the prior year period, primarily reflects an increase in the amortization of acquired customer contracts of $4 million. Interest Expense, Net The three months ended March 31, 2025, as compared to the prior year period, primarily reflects an unrealized loss on our interest rate swaps of $21 million in the current year compared to an unrealized gain of $17 million in the prior year. Other Income (Expense) The three months ended March 31, 2025, as compared to the prior year period, primarily reflects lower Commercial TSA income of $11 million, as well as a loss on extinguishment of debt of $6 million in the current year. Income Tax Benefit (Expense) During the three months ended March 31, 2025, income tax expense was $51 million, resulting in an effective tax rate for the period of 26.4%. The effective tax rate primarily represents the federal statutory tax rate of 21.0% and a state tax rate, net of federal benefits, of 5.6%. During the three months ended March 31, 2024, income tax expense was $56 million, resulting in an effective tax rate for the period of 25.6%. The effective tax rate primarily represents the federal statutory tax rate of 21.0%, and a state tax rate, net of federal benefits, of 5.4%, partially offset by a favorable impact from a decrease in unrecognized tax benefits of 1.2%. NON-GAAP MEASURES To provide investors with additional information in connection with our results as determined in accordance with GAAP, we disclose the following non-GAAP measures. These measures are not financial measures calculated in accordance with GAAP, and should not be considered as a substitute for net income, income (loss) from continuing operations, operating income, or their respective per share amounts as applicable, or any other measure calculated in accordance with GAAP, and may not be comparable to similarly titled measures reported by other companies. Adjusted EPS We define Adjusted EPS as diluted income (loss) from continuing operations per share adjusted for the per share amounts related to (i) share-based compensation expense; (ii) merger, restructuring, integration, and other items; (iii) impairment 31 charges; (iv) unrealized (gains) or losses on interest rate swaps; (v) other non-cash or non-routine adjustments not necessary to operate our business; and (vi) the impact these items have on taxes. The diluted weighted average shares outstanding used in Adjusted EPS is equal to diluted weighted average shares outstanding of Common Stock calculated in accordance with GAAP. We believe Adjusted EPS is a benchmark used by analysts and investors in our industry to compare our performance against the performance of other companies, although this measure may not be directly comparable to similar measures reported by other companies. We believe the presentation of Adjusted EPS is useful to investors as it provides additional information about how our management evaluates the business. Beginning in 2025, management and the Board also use Adjusted EPS to evaluate the performance of employees (including members of management) and the Company as a whole, as well as to allocate resources. There are material limitations to using Adjusted EPS as it does not include certain significant items, including the adjustments discussed above, which directly affect our diluted income (loss) from continuing operations per share (the most comparable GAAP measure). These limitations are best addressed by considering the economic effects of the excluded items independently and by considering Adjusted EPS in conjunction with diluted income (loss) from continuing operations per share as calculated in accordance with GAAP. The table below reconciles Adjusted EPS to diluted income (loss) from continuing operations per share of Common Stock: Three Months Ended March 31, 2025 2024 $ Change Diluted income (loss) from continuing operations per share of Common Stock $ 0.16 $ 0.17 $ (0.01) Share-based compensation expense 0.02 0.01 0.01 Merger, restructuring, integration, and other — 0.01 (0.01) Interest rate swaps, net (1) 0.03 (0.01) 0.04 Loss on extinguishment of debt 0.01 — 0.01 Other, net — — — Tax impact on adjustments (2) (0.01) — (0.01) Adjusted EPS (from continuing operations) (3) $ 0.21 $ 0.19 $ 0.02 ________________ (1) Includes unrealized gains or losses on interest rate swaps presented in interest expense, net and other income (expense). (2) Represents the tax impact on adjustments using the federal and state blended statutory rate. (3) Amounts may not sum in this table due to rounding. During the three months ended March 31, 2025, the increase in Adjusted EPS, as compared to the prior year period, was primarily due to (i) an increase of approximately $0.02 per share due to an increase in revenue, net of the related costs including the allowance for credit losses, and (ii) an increase of approximately $0.01 per share due to a decrease in our diluted weighted average shares outstanding as a result of share repurchases during the period. The factors listed above exclude amounts that are outside of our definition of Adjusted EPS. Refer to the discussions above under “—Results of Operations” for further details. Adjusted EBITDA We define Adjusted EBITDA as income (loss) from continuing operations adjusted for (i) interest; (ii) taxes; (iii) depreciation and amortization, including depreciation of subscriber system assets and other fixed assets and amortization of dealer and other intangible assets; (iv) amortization of deferred costs and deferred revenue associated with subscriber acquisitions; (v) share-based compensation expense; (vi) merger, restructuring, integration, and other items; (vii) impairment charges; and (viii) other non-cash or non-routine adjustments not necessary to operate our business. We believe Adjusted EBITDA is useful to investors to measure the operational strength and performance of our business. We believe the presentation of Adjusted EBITDA is useful as it provides investors additional information about our operating profitability adjusted for certain non-cash items, non-routine items we do not expect to continue at the same level in the future, as well as other items not core to our operations. Further, we believe Adjusted EBITDA provides a meaningful measure of operating profitability because we use it for evaluating our business performance, making budgeting decisions, and comparing our performance against other peer companies using similar measures, although this measure may not be directly comparable to similar measures reported by other companies. 32 There are material limitations to using Adjusted EBITDA as it does not include certain significant items, including interest, taxes, depreciation and amortization, and other adjustments which directly affect our income (loss) from continuing operations (the most comparable GAAP measure). These limitations are best addressed by considering the economic effects of the excluded items independently and by considering Adjusted EBITDA in conjunction with income (loss) from continuing operations as calculated in accordance with GAAP. The table below reconciles Adjusted EBITDA to income (loss) from continuing operations: Three Months Ended March 31, (in thousands) 2025 2024 $ Change Income (loss) from continuing operations $ 142,477 $ 163,891 $ (21,414) Interest expense, net 120,879 87,450 33,429 Income tax expense (benefit) 51,032 56,430 (5,398) Depreciation and intangible asset amortization 339,517 333,002 6,515 Amortization of deferred subscriber acquisition costs 60,358 54,605 5,753 Amortization of deferred subscriber acquisition revenue (88,871) (83,376) (5,495) Share-based compensation expense 20,521 8,075 12,446 Merger, restructuring, integration, and other 3,905 11,653 (7,748) Unrealized (gain) loss on interest rate swaps (1) 4,032 6,601 (2,569) Loss on extinguishment of debt 6,443 — 6,443 Other, net 508 (640) 1,148 Adjusted EBITDA (from continuing operations) $ 660,801 $ 637,691 $ 23,110 ________________ (1) Includes unrealized gains or losses on interest rate swaps presented in other income (expense). During the three months ended March 31, 2025, the increase in Adjusted EBITDA, as compared to the prior year period, was primarily due to: • higher M&S Revenue, net of the associated costs, of approximately $17 million, • a decrease in general and administrative costs of $13 million, and • higher installation revenue, net of the associated costs and commissions, of approximately $11 million, partially offset by • an increase in the allowance for credit losses of $17 million. The factors listed above exclude amounts that are outside of our definition of Adjusted EBITDA. Refer to the discussions above under “—Results of Operations” for further details. LIQUIDITY AND CAPITAL RESOURCES Liquidity and capital resources primarily consisted of the following: (in thousands) March 31, 2025 Cash and cash equivalents $ 3,744 Restricted cash and restricted cash equivalents $ 87,442 Availability under First Lien Revolving Credit Facility $ 760,000 Uncommitted available borrowing capacity under 2020 Receivables Facility $ 153,806 Carrying amount of total debt outstanding, including finance leases $ 7,819,334 Liquidity 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, income tax payments, capital expenditures, expected dividend payments to our stockholders, potential share repurchases under our 2025 Share Repurchase Plan, and other business initiatives as they arise. 33 We are a highly leveraged company with significant debt service requirements and have both fixed-rate and variable-rate debt. We may periodically seek to repay, redeem, repurchase, or refinance our indebtedness, or seek to repurchase and retire our outstanding securities through cash purchases in the open market, privately negotiated transactions, a 10b5-1 repurchase plan, or otherwise, and any such transactions may involve material amounts. Cash outflows for interest payments are not consistent between quarters, with larger outflows occurring in the first and third quarters, and may vary as a result of our variable rate debt. We believe our cash position, available borrowing capacity under our credit agreements, and cash provided by operating activities are, and will continue to be, adequate to meet our operational and business needs in the next twelve months, as well as our long-term liquidity needs. Material Cash Requirements There have been no significant changes to our material cash requirements, commitments and contingencies, or off-balance sheet arrangements from those disclosed in our 2024 Annual Report, except as discussed below. Debt Principal As of March 31, 2025, our next significant debt maturity will occur in April 2026 with respect to the remaining outstanding balance of our First Lien Notes due 2026. We intend, and believe that we will have the ability through use of our ongoing sources of liquidity, or through refinancing, to redeem these notes before maturity. Share Repurchase Plans In January 2024, our Board of Directors announced the 2024 Share Repurchase Plan, pursuant to which we were authorized to repurchase, through January 29, 2025, up to a maximum aggregate amount of $350 million of shares of our Common Stock. We entered into an agreement in December 2024 to repurchase 15 million shares of Common Stock from a non-affiliate individual at a price per share of $6.95 for a total of $104 million under the 2024 Share Repurchase Plan. The transaction settled in January 2025, and we retired the shares. The 2024 Share Repurchase Plan expired in January 2025 with $5 million authorized repurchases remaining. In February 2025, our Board of Directors announced the 2025 Share Repurchase Plan, pursuant to which we are authorized to repurchase, through April 30, 2026, up to a maximum aggregate amount of $500 million of shares of our Common Stock. The 2025 Share Repurchase Plan allows us to purchase Common Stock, from time to time, in one or more open market or privately negotiated transactions, including pursuant to Rule 10b5-1 or Rule 10b-18 of the Exchange Act, or pursuant to one or more accelerated share repurchase agreements, subject to certain requirements and other factors. We are not obligated to repurchase any of our shares of Common Stock, and the timing and amount of any repurchases will depend on legal requirements, market conditions, stock price, the availability of the safe harbor provided by Rule 10b-18 under the Exchange Act, alternative uses of capital, and other factors. In March 2025, we repurchased, and subsequently retired, 20 million shares of our Common Stock under the 2025 Share Repurchase Plan and paid approximately $152 million (or approximately $7.62 per share) in connection with a secondary offering of our Common Stock by Apollo. Additionally, in March 2025, we repurchased, and subsequently retired, an additional 18 million shares of our Common Stock in the open market pursuant to Rule 10b5-1 and Rule 10b-18 of the Exchange Act in multiple transactions for $140 million (or $7.79 per share). As of March 31, 2025, we recorded a liability and reduction to additional paid-in capital of $9 million for the repurchase of 1 million shares, which settled in April 2025. As of March 31, 2025, we have approximately $208 million remaining under the 2025 Share Repurchase Plan. 34 In April 2025, we repurchased. and subsequently retired, 6 million shares (excluding the shares noted above) in the open market pursuant to Rule 10b5-1 and Rule 10b-18 of the Exchange Act in multiple transactions for a total of $52 million (or $8.04 per share). As a result, we have $148 million remaining under the 2025 Share Repurchase Plan. Other Contractual Obligations As of March 31, 2025, we continue to work to meet our commitment of $200 million of aggregate purchases under the Google Cloud Agreement Addendum. In addition, we were party to an agreement with one of our vendors as of December 31, 2024 to purchase at least $370 million of security system equipment and components through December 2025. During the three months ended March 31, 2025, purchases toward this commitment were $46 million. Refer to Note 12 “Commitments and Contingencies.” Cash Taxes While we have historically made cash tax payments to certain states, starting in 2025, we will begin making federal cash tax payments. Our initial estimated payments are expected to be made in the second quarter of 2025, with subsequent payments scheduled for the relevant periods they correspond to. The specific payment amounts may fluctuate each quarter, based on our financial results and tax positions taken. Dividends On April 24, 2025, we announced a dividend of $0.055 per share to holders of Common Stock and Class B Common Stock of record on June 12, 2025, which will be paid on July 8, 2025. Long-Term Debt Significant changes and activity related to our long-term debt since our 2024 Annual Report are discussed below. Refer to Note 6 “Debt.” First Lien Credit Agreement In March 2025, we amended and restated the First Lien Credit Agreement and issued a new $600 million first lien seven-year term loan facility (the “First Lien Term Loan B-2 due 2032”). The First Lien Term Loan B-2 due 2032 requires scheduled quarterly amortization payments, commencing on June 30, 2025, equal to 0.25% of the original principal amount of the First Lien Term Loan B-2 due 2032, with the remaining balance payable at maturity. Debt issuance costs were not material. During the three months ended March 31, 2025, we borrowed $40 million under the First Lien Revolving Credit Facility, which was outstanding as of March 31, 2025. Additionally, as of April 24, 2025, there were no amounts outstanding under the First Lien Revolving Credit Facility. First Lien Notes due 2026 Partial Redemption In March 2025, we redeemed $500 million of the First Lien Notes due 2026, excluding accrued and unpaid interest, for a total redemption price of $506 million, including a make-whole payment, using proceeds from the Company’s First Lien Term Loan B-2 due 2032. Loss on extinguishment of debt was not material. We intend, and believe that we will have the ability through use of our ongoing sources of liquidity, or through refinancing, to redeem these notes before maturity. 2020 Receivables Facility In March 2025, we amended the agreement governing the 2020 Receivables Facility to extend the uncommitted revolving period to March 2026, reduce the interest rate on outstanding borrowings, and increase the advance rate on pledged collateral. Additionally, during the first quarter of 2025, we voluntarily prepaid $23 million of the remaining balance. 35 As of March 31, 2025, the outstanding balance was $396 million. Debt Covenants As of March 31, 2025, 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. 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. Three Months Ended March 31, (in thousands) 2025 2024 $ Change Net cash provided by (used in): Operating activities $ 466,626 $ 363,802 $ 102,824 Investing activities $ (258,259) $ (300,070) $ 41,811 Financing activities $ (321,246) $ (74,986) $ (246,260) Cash Flows from Operating Activities The increase in net cash provided by operating activities, as compared to the prior year period, was primarily due to the benefit of lower outflows in the current year related to our former Solar Business and 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. Refer to the discussions above under “—Results of Operations” for further details. Cash Flows from Investing Activities The decrease in net cash used in investing activities, as compared to the prior year period, was primarily due to: • a decrease in subscriber system assets expenditures of $35 million primarily due to a higher volume of outright sales and fewer customer additions and • a decrease in dealer generated customer accounts and bulk account purchases of $11 million primarily due to lower volume. Cash Flows from Financing Activities The increase in net cash used in financing activities, as compared to the prior period, was primarily due to: • an increase in share repurchases of $303 million and • an increase in net repayments on our 2020 Receivables Facility of $20 million primarily due to the voluntary prepayment during March 2025, partially offset by • an increase in net borrowings on our long-term debt of $88 million primarily related to the issuance of the First Lien Term Loan B-2 due 2032 partially offset by the redemption of the First Lien Notes due 2026. CRITICAL ACCOUNTING ESTIMATES We disclosed our critical accounting estimates in our 2024 Annual Report, which include estimates prepared in accordance with GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations. Critical accounting estimates are based on, among other things, estimates, assumptions, and judgments made by management that include inherent risks and uncertainties. Our estimates are based on relevant information available at the end of each period. Actual results could differ materially from these estimates under different assumptions or market conditions. There were no material changes in our critical accounting estimates since our 2024 Annual Report. 36 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 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; the expected benefits 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; any repurchases of our common stock under an authorized share repurchase plan; anticipated financial performance, including the Company’s ability to achieve its stated guidance metrics; our ability to refinance or reduce debt or improve leverage ratios, or to achieve or maintain our leverage goals; anticipated financial performance, management’s plans and objectives for future operations; the successful development, commercialization, and timing of new or joint products; the expected timing of product commercialization with State Farm or any changes thereto, including the ADT home security program for State Farm; business prospects; outcomes of regulatory proceedings; market conditions; our ability to deploy our business continuity and disaster plans and procedures to successfully respond to catastrophic events; our strategic partnership and ongoing relationship with Google LLC (“Google”); the expected timing of product commercialization with Google or any changes thereto; the successful internal development, commercialization, and timing of our next generation platform and innovative offerings; the successful conversion of customers who continue to utilize outdated technology; the current and future market size for existing, new, or joint products; any stated or implied outcomes with regards to the foregoing; and other matters. 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 “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. Particular uncertainties that could cause our actual results to be materially different than those expressed in our forward- looking statements include, without limitation: • our ability to retain and hire key personnel and to maintain relationships with customers, suppliers, and other business partners; • risks related to the Commercial Divestiture and ADT Solar Exit, including our business becoming less diversified and the possible diversion of management’s attention from our core business operations; • our ability to keep pace with rapid technological changes and other industry changes; • risks related to the expansion and further development of our next-generation platform and our efforts to migrate our information technology infrastructure, including our customer relationship management and enterprise resource planning systems, to the cloud; • our ability to effectively implement our strategic partnership with, commercialize products with, or utilize any of the amounts invested in us by State Farm or provided by State Farm for research and development or other purposes; • our ability to effectively implement our strategic partnership with or utilize any of the amounts invested in us by Google; • the impact of supply chain disruptions; • our ability to maintain and grow our existing customer base and to integrate strategic bulk purchases of customer accounts; • 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; • any changes in regulations or laws, economic and financial conditions, including labor and tax law changes or any impacts on the global economy or consumer discretionary spending due to tariffs or otherwise, changes to privacy requirements, changes to telemarketing, email marketing and similar consumer protection laws, interest volatility, and trade tariffs and restrictions applicable to the products we sell; 37 • any impacts from current global, economic, sovereign and political conditions and uncertainties, including the effects of, and uncertainty regarding, new or proposed tariff or trade regulations; • any material changes to the valuation allowances we take with respect to our deferred tax assets; • the impact of cyber attacks or related breaches with respect to information technology systems, cybersecurity, or data security involving us, our business partners, or other third parties whose systems are interconnected with ours, including the incidents disclosed in our 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”) and any similar future or still undetected attacks or incidents; • risks related to the development, deployment, and use of artificial intelligence (“AI”) in our products and services, including technological and legal uncertainties surrounding AI technologies; • 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; • our ability to successfully implement an equipment ownership model that best satisfies the needs of our customers and to successfully implement and maintain our receivables securitization financing agreement or similar arrangements; • our ability to successfully pursue alternate business opportunities and strategies; • our ability to continue to integrate various businesses, including bulk acquisitions of customer accounts, we have acquired or will acquire in the future, in an efficient and cost-effective manner; • the amount and timing of our cash flows and earnings, which may be impacted by customer, competitive, supplier and other dynamics and conditions; • our ability to maintain or improve margins through business efficiencies; • risks related to the restatement of our consolidated financial statements included in our Amendment No. 1 to our Annual Report on Form 10-K for the year ended December 31, 2022 (the “Amended 2022 Annual Report”) and in our Quarterly Reports on Form 10-Q/A for the quarters ended September 30, 2022, and March 31, 2023, each as filed with the SEC on July 27, 2023; • any litigation or investigation related to such restatements; • our ability to maintain effective internal control over financial reporting (“ICFR”) and disclosure controls and procedures (“DCPs”), including our ability to remediate any potential material weakness in our ICFR and the timing of any such remediation, as well as the ability to maintain effective DCPs at a reasonable assurance level; and • the other factors that are described under the heading “Risk Factors” in our last Annual Report on Form 10-K for the year ended December 31, 2024. Forward-looking statements and information involve risks, uncertainties, and other factors that could cause actual results to differ materially from those expressed or implied in, or reasonably inferred from, such statements, including without limitation, the risks and uncertainties disclosed or referenced under the heading “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q and Part I, Item 1A in our 2024 Annual Report. Therefore, caution should be taken not to place undue reliance on any such forward-looking statements. Much of the information in this report that looks toward future performance is based on various factors and important assumptions about future events that may or may not actually occur. As a result, our operations and financial results in the future could differ materially and substantially from those we have discussed in the forward-looking statements included in this Quarterly Report on Form 10-Q. Any forward-looking statement made in this Quarterly Report on Form 10-Q speaks only as of the date on which it is made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future developments, or otherwise unless required by law.