What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-07-24 compared with 2025-04-24 · 90 added, 75 removed, 300 unchanged (35% of the section changed)

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Unless otherwise noted, our results of operations discussed below relate to continuing operations.

As of March 31, 2025, we served approximately 6.4 million security monitoring service subscribers.

As of June 30, 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.

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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.

For example, the mix of professional installation solutions versus self set-up solutions may impact our results in future periods, as self set-up 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.

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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.

During the six months ended June 30, 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.

As a result of Apollo selling shares of our Common Stock (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) occurred during the second quarter of 2025.

Generally, an ownership change occurs when the aggregate ownership of certain shareholders shifts, for federal income tax purposes, by more than 50 percentage points in total over a rolling three-year period.

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.

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.

Our tax attributes that are subject to the limitations primarily consist of disallowed interest carryforwards.

However, the limitation as a result of the ownership change significantly exceeded the value of these attributes.

As such, we currently do not expect a material impact to our results from this ownership change.

On July 4, 2025, the OBBBA was signed into law, which includes a broad range of tax reform provisions, some of which we expect may be favorable to our results.

We are currently evaluating the impact of the bill.

KEY PERFORMANCE INDICATORS

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RESULTS OF OPERATIONS

Three Months Ended March 31,

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

(in thousands, except per share data or as otherwise indicated)

2025 2024 $ Change

2025 2024 $ Change 2025 2024 $ Change

Monitoring and related services $ 1,090,241 $ 1,068,065 $ 22,176 $ 2,173,345 $ 2,130,717 $ 42,628

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Key Performance Indicators:

$ 359,534 $ 353,274 $ 6,260

Gross customer revenue attrition (percent) 12.6% 13.1% N/A*

RMR $ 362,750 $ 355,179 $ 7,571 $ 362,750 $ 355,179 $ 7,571

Gross customer revenue attrition (percent) 12.8% 12.9% N/A* 12.8% 12.9% N/A*

Adjusted EPS (2)

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* Not applicable.

The three months ended March 31, 2025, as compared to the prior year period, primarily reflects:

The three and six months ended June 30, 2025, as compared to the prior year periods, 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.

higher recurring revenue of $16 million and $32 million, respectively, primarily driven by an increase in average prices.

• 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.

higher installation revenue of $57 million and $109 million, respectively, 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 periods, was primarily driven by an increase in average prices on new and existing subscribers.

Gross customer revenue attrition, as compared to the prior year periods, was relatively flat and included a reduction in voluntary and other disconnects as well as relocations, partially offset by higher non-payment disconnects.

Cost of Revenue

The three months ended March 31, 2025, as compared to the prior year period, primarily reflects:

The three and six months ended June 30, 2025, as compared to the prior year periods, 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.

an increase in M&S Costs of $11 million and $14 million, respectively, primarily due to higher interactive fees.

• 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.

an increase in installation and product costs of $43 million and $86 million, respectively, 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

The three months ended June 30, 2025, as compared to the prior year period, primarily reflects:

• a decrease in general and administrative costs of $23 million primarily as a result of $20 million related to a legal settlement in the prior year, as well as cost savings initiatives, and

• a decrease in share-based compensation of $10 million due to the modification of certain awards in the prior period.

The six months ended June 30, 2025, as compared to the prior year period, primarily reflects:

• a decrease in general and administrative costs of $39 million primarily as a result of $20 million related to a legal settlement in the prior year, as well as cost savings initiatives, and

• a decrease in advertising costs of $12 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.

• an increase in the allowance for credit losses of $15 million primarily as a result of an increase in revenue and customer delinquencies.

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.

The three and six months ended June 30, 2025, as compared to the prior year periods, primarily reflects an increase in the amortization of acquired customer contracts of $4 million and $8 million, respectively.

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.

The three months ended June 30, 2025, as compared to the prior year period, primarily reflects unrealized losses on our interest rate swaps of $13 million in the current year as compared to $5 million in the prior year.

The six months ended June 30, 2025, as compared to the prior year period, primarily reflects an unrealized loss on our interest rate swaps of $34 million in the current year as compared to an unrealized gain of $12 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.

The three and six months ended June 30, 2025, as compared to the prior year periods, primarily reflects lower Commercial TSA income of $10 million and $21 million, respectively.

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%.

The Company’s income tax expense for the three months ended June 30, 2025 was $59 million, resulting in an effective tax rate for the period of 25.9%.

The effective tax rate primarily represents the federal statutory rate of 21.0%, and a state tax rate, net of federal benefits, of 4.9%.

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

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

The Company’s income tax expense for the six months ended June 30, 2025 was $110 million, resulting in an effective tax rate for the period of 26.1%.

The effective tax rate primarily represents the federal statutory rate of 21.0%, and a state tax rate, net of federal benefits, of 5.2%.

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

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

NON-GAAP MEASURES

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

(iii) impairment

(iii) impairment charges;

(iv) unrealized (gains) or losses on interest rate swaps;

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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

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

2025 2024 $ Change 2025 2024 $ Change

Diluted income (loss) from continuing operations per share of Common Stock

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(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.

During the three and six months ended June 30, 2025, the increase in Adjusted EPS, as compared to the prior year periods, was primarily due to (i) an increase of approximately $0.04 and $0.05 per share, respectively, due to an increase in revenue, net of the related costs including the allowance for credit losses, an increase of approximately $0.02 and $0.04 per share, respectively, due to lower general and administrative costs, and (ii) an increase of approximately $0.02 and $0.03 per share, respectively, due to a decrease in our diluted weighted average shares outstanding as a result of share repurchases during the period.

This was partially offset by a decrease of approximately $0.01 and $0.02 per share, respectively, due to lower Commercial TSA income.

The factors listed above exclude amounts that are outside of our definition of Adjusted EPS.

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

Three Months Ended March 31,

(in thousands) 2025 2024 $ Change

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

(in thousands) 2025 2024 $ Change 2025 2024 $ Change

Income (loss) from continuing operations

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(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.

During the three and six months ended June 30, 2025, the increase in Adjusted EBITDA, as compared to the prior year periods, was primarily due to:

• a decrease in general and administrative costs of $20 million and $33 million, respectively,

• higher M&S Revenue, net of the associated costs, of approximately $11 million and $29 million, respectively, and

• higher installation revenue, net of the associated costs and commissions, of approximately $17 million and $28 million, respectively, partially offset by

• a decrease in Commercial TSA income of $10 million and $21 million, respectively, and

• an increase in the allowance for credit losses of $15 million during the six months ended June 30, 2025.

The factors listed above exclude amounts that are outside of our definition of Adjusted EBITDA.

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Liquidity and capital resources primarily consisted of the following:

(in thousands) March 31, 2025

(in thousands) June 30, 2025

Cash and cash equivalents $ 45,195

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We expect our ongoing sources of liquidity to include cash generated from operations, borrowings under our credit facilities, and the issuance of equity and/or debt securities as appropriate given market conditions.

Our future cash needs are expected to include cash for operating activities including working capital, principal and interest payments on our debt, 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.

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

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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.

As of June 30, 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, and through the refinancing transaction to be closed in July 2025 discussed above, to redeem these notes before maturity.

Share Repurchase Plans

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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.

The 2024 Share Repurchase Plan expired in January 2025 with $5 million in 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.

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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.

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.

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 under the 2025 Share Repurchase Plan in multiple transactions for a total of $140 million (or $7.79 per share).

During the second quarter of 2025, we repurchased.

and subsequently retired, 12 million shares of our Common Stock in the open market pursuant to Rule 10b5-1 and Rule 10b-18 of the Exchange Act under the 2025 Share Repurchase Plan in multiple transactions for a total of $96 million (or $8.14 per share).

As of June 30, 2025, we have approximately $112 million remaining under the 2025 Share Repurchase Plan.

During July 2025, we repurchased, and subsequently retired, 2 million shares in the open market pursuant to Rule 10b5-1 and Rule 10b-18 of the Exchange Act under the 2025 Share Repurchase Plan in multiple transactions for a total of $16 million (or $8.45 per share).

As of July 22, 2025, we had approximately $96 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.

As of June 30, 2025, we continue to work to meet our commitment of $200 million of aggregate purchases under the Google Cloud Agreement Addendum.

In addition, we are party to an agreement with one of our vendors to purchase at least $370 million of security system equipment and components through December 2025.

During the six months ended June 30, 2025, purchases toward this commitment were $91 million.

Refer to Note 12 “Commitments and Contingencies.”

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.

While we have historically made cash tax payments to certain states, starting in the second quarter of 2025, we began making federal cash tax payments.

The specific payment amounts may fluctuate each quarter based on our financial results and tax positions taken.

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.

On July 24, 2025, we announced a dividend of $0.055 per share to holders of Common Stock and Class B Common Stock of record on September 11, 2025, which will be paid on October 2, 2025.

Long-Term Debt

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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”).

In March 2025, we amended and restated the First Lien Credit Agreement and issued 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

During the six months ended June 30, 2025, we borrowed and repaid $133 million under the First Lien Revolving Credit Facility.

We had no amounts outstanding as of June 30, 2025.

In June 2025, certain lenders provided commitments to fund an additional $550 million of term loans as part of the First Lien Term Loan B-2 due 2032.

The closing of this transaction, which remains subject to market and other customary conditions, is expected to occur on or around July 25, 2025.

Also in June 2025, we issued a notice of partial redemption for $550 million of the First Lien Notes due 2026, which will be redeemed on July 27, 2025.

We intend to use proceeds from the First Lien Term Loan B-2 due 2032 for the partial redemption of the First Lien Notes due 2026.

First Lien Notes due 2026 Partial Redemptions

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.

In June 2025 we issued a notice of partial redemption for $550 million of the First Lien Notes due 2026, which will be redeemed on July 27, 2025.

We intend, and believe that we will have the ability through use of our ongoing sources of liquidity, or through refinancing, to redeem the remaining outstanding balance of 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.

As of March 31, 2025, the outstanding balance was $396 million.

As of June 30, 2025, the outstanding balance was $440 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.

As of June 30, 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.

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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,

Six Months Ended June 30,

(in thousands) 2025 2024 $ Change

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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.

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, improved operating performance, 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, partially offset by an increase in cash tax payments and a higher proportion of outright sales transactions.

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

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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.

• a decrease in subscriber system assets expenditures of $75 million primarily due to a higher proportion of outright sales partially offset by

• an increase in dealer generated customer accounts and bulk account purchases of $71 million primarily due to bulk account purchases during the second quarter of 2025.

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.

• higher share repurchases of $402 million, partially offset by

• net borrowings on long-term debt of $80 million during the current period primarily due to the issuance of the First Lien Term Loan B-2 due 2032, partially offset by the partial redemption of the First Lien Notes due 2026, as compared to net repayments of $112 million during the prior period primarily due to the repayment of the First Lien Notes due 2024, and

• an increase in net borrowings on our 2020 Receivables Facility of $44 million.

CRITICAL ACCOUNTING ESTIMATES

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

There were no material changes in our critical accounting estimates since our 2024 Annual Report.

There have been no material changes to our critical accounting estimates as disclosed in our 2024 Annual Report.

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS

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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”);

our strategic partnership and ongoing relationship with Google;

the expected timing of product commercialization with Google or any changes thereto;

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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