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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 FORM 10-Q
(Mark One)
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2022
OR
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from __________ to __________
Commission File Number: 001-38352
adt-20220930_g1.jpg
ADT Inc.
(Exact name of registrant as specified in its charter)
Delaware47-4116383
(State or other jurisdiction
of incorporation or organization)
(I.R.S. Employer
Identification No.)
1501 Yamato Road
Boca Raton, Florida 33431
(561) 988-3600
(Address of principal executive offices, including zip code, Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, par value $0.01 per shareADTNew York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes x   No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes x  No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filer Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
As of October 26, 2022, there were 858,722,743 shares outstanding of the registrant’s common stock, $0.01 par value per share, and 54,744,525 shares outstanding of the registrant’s Class B common stock, $0.01 par value per share.



TABLE OF CONTENTS
Page



PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.

ADT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share and per share data) 
September 30, 2022December 31, 2021
Assets
Current assets:
Cash and cash equivalents$45,734 $24,453 
Accounts receivable, net of allowance for credit losses of $61,228 and $54,032, respectively
539,573 442,158 
Inventories, net331,615 277,323 
Work-in-progress91,925 70,528 
Prepaid expenses and other current assets355,468 178,069 
Total current assets1,364,315 992,531 
Property and equipment, net376,968 364,108 
Subscriber system assets, net3,039,577 2,867,528 
Intangible assets, net5,185,952 5,413,351 
Goodwill5,822,076 5,943,403 
Deferred subscriber acquisition costs, net1,035,144 850,489 
Other assets743,863 462,941 
Total assets$17,567,895 $16,894,351 
Liabilities and stockholders' equity
Current liabilities:
Current maturities of long-term debt$857,746 $117,592 
Accounts payable489,948 474,976 
Deferred revenue428,861 373,532 
Accrued expenses and other current liabilities909,172 737,245 
Total current liabilities2,685,727 1,703,345 
Long-term debt8,945,314 9,575,098 
Deferred subscriber acquisition revenue1,554,764 1,199,293 
Deferred tax liabilities927,606 867,203 
Other liabilities247,630 300,693 
Total liabilities14,361,041 13,645,632 
Commitments and contingencies (See Note 13)
Stockholders' equity:
Preferred stock—authorized 1,000,000 shares of $0.01 par value; zero issued and outstanding as of September 30, 2022 and December 31, 2021
  
Common stock—authorized 3,999,000,000 shares of $0.01 par value; issued and outstanding shares of 858,629,554 and 846,825,868 as of September 30, 2022 and December 31, 2021, respectively
8,586 8,468 
Class B common stock—authorized 100,000,000 shares of $0.01 par value; issued and outstanding shares of 54,744,525 as of September 30, 2022 and December 31, 2021
547 547 
Additional paid-in capital7,273,501 7,261,267 
Accumulated deficit(4,028,519)(3,952,590)
Accumulated other comprehensive income (loss)(47,261)(68,973)
Total stockholders' equity3,206,854 3,248,719 
Total liabilities and stockholders' equity$17,567,895 $16,894,351 
See Notes to Condensed Consolidated Financial Statements
1



ADT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Monitoring and related services$1,159,641 $1,098,389 $3,426,729 $3,244,675 
Installation, product, and other444,450 218,613 1,323,139 681,448 
Total revenue1,604,091 1,317,002 4,749,868 3,926,123 
Cost of revenue (exclusive of depreciation and amortization shown separately below)494,321 371,985 1,511,902 1,134,736 
Selling, general, and administrative expenses480,427 448,634 1,449,844 1,343,872 
Depreciation and intangible asset amortization406,332 480,010 1,281,871 1,424,090 
Merger, restructuring, integration, and other6,285 (6,723)2,968 18,588 
Goodwill impairment149,385  149,385  
Operating income (loss)67,341 23,096 353,898 4,837 
Interest expense, net(30,084)(133,275)(118,042)(347,524)
Loss on extinguishment of debt (36,957) (37,113)
Other income (expense)(156,116)1,511 (153,157)4,847 
Income (loss) before income taxes and equity in net earnings (losses) of equity method investee(118,859)(145,625)82,699 (374,953)
Income tax benefit (expense)(1,534)36,496 (58,982)92,080 
Income (loss) before equity in net earnings (losses) of equity method investee(120,393)(109,129)23,717 (282,873)
Equity in net earnings (losses) of equity method investee(1,594) (2,542) 
Net income (loss)$(121,987)$(109,129)$21,175 $(282,873)
Net income (loss) per share - basic:
Common Stock$(0.13)$(0.13)$0.02 $(0.35)
Class B Common Stock$(0.13)$(0.13)$0.02 $(0.35)
Weighted-average shares outstanding - basic:
Common Stock850,230 766,814 847,456 765,162 
Class B Common Stock54,745 54,745 54,745 54,745 
Net income (loss) per share - diluted:
Common Stock$(0.13)$(0.13)$0.02 $(0.35)
Class B Common Stock$(0.13)$(0.13)$0.02 $(0.35)
Weighted-average shares outstanding - diluted:
Common Stock850,230 766,814 857,696 765,162 
Class B Common Stock54,745 54,745 54,745 54,745 
See Notes to Condensed Consolidated Financial Statements
2



ADT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(in thousands)
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Net income (loss)$(121,987)$(109,129)$21,175 $(282,873)
Other comprehensive income (loss), net of tax:
Cash flow hedges4,088 11,790 21,741 34,827 
Other(15)(2)(29)882 
Total other comprehensive income (loss), net of tax 4,073 11,788 21,712 35,709 
Comprehensive income (loss)$(117,914)$(97,341)$42,887 $(247,164)
See Notes to Condensed Consolidated Financial Statements
3



ADT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(in thousands)

Three Months Ended September 30, 2022
Number of Common SharesNumber of Class B Common SharesCommon StockClass B Common StockAdditional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive Income (Loss)Total Stockholders' Equity
Beginning balance856,642 54,745 $8,566 $547 $7,295,665 $(3,874,045)$(51,334)$3,379,399 
Net income (loss)— — — — — (121,987)— (121,987)
Other comprehensive income (loss), net of tax— — — — — — 4,073 4,073 
Issuance of common stock1,322 — 13 — (13)— —  
Dividends— — — — — (32,028)— (32,028)
Share-based compensation expense— — — — 16,692 — — 16,692 
Contingent forward purchase contract— — — — (41,938)— — (41,938)
Transactions related to employee share-based compensation plans and other666 — 7 — 3,095 (459)— 2,643 
Ending balance858,630 54,745 $8,586 $547 $7,273,501 $(4,028,519)$(47,261)$3,206,854 

Three Months Ended September 30, 2021
Number of Common SharesNumber of Class B Common SharesCommon StockClass B Common StockAdditional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive Income (Loss)Total Stockholders' Equity
Beginning balance776,310 54,745 $7,763 $547 $6,665,145 $(3,724,139)$(94,694)$2,854,622 
Net income (loss)— — — — — (109,129)— (109,129)
Other comprehensive income (loss), net of tax— — — — — — 11,788 11,788 
Dividends— — — — — (29,186)— (29,186)
Share-based compensation expense— — — — 16,242 — — 16,242 
Transactions related to employee share-based compensation plans and other100 — 1 — (3,512)(510)— (4,021)
Ending balance776,410 54,745 $7,764 $547 $6,677,875 $(3,862,964)$(82,906)$2,740,316 
See Notes to Condensed Consolidated Financial Statements
4



ADT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(in thousands)

Nine Months Ended September 30, 2022
Number of Common SharesNumber of Class B Common SharesCommon StockClass B Common StockAdditional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive Income (Loss)Total Stockholders' Equity
Beginning balance846,826 54,745 $8,468 $547 $7,261,267 $(3,952,590)$(68,973)$3,248,719 
Net income (loss)— — — — — 21,175 — 21,175 
Other comprehensive income (loss), net of tax— — — — — — 21,712 21,712 
Issuance of common stock6,026 — 60 — 15,308 — — 15,368 
Dividends— — — — — (95,730)— (95,730)
Share-based compensation expense— — — — 49,644 — — 49,644 
Contingent forward purchase contract— — — — (41,938)— — (41,938)
Transactions related to employee share-based
compensation plans and other
5,778 — 58 — (10,780)(1,374)— (12,096)
Ending balance858,630 54,745 $8,586 $547 $7,273,501 $(4,028,519)$(47,261)$3,206,854 

Nine Months Ended September 30, 2021
Number of Common SharesNumber of Class B Common SharesCommon StockClass B Common StockAdditional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive Income (Loss)Total Stockholders' Equity
Beginning balance771,014 54,745 $7,710 $547 $6,640,763 $(3,491,069)$(118,615)$3,039,336 
Net income (loss)— — — — — (282,873)— (282,873)
Other comprehensive income (loss), net of tax— — — — — — 35,709 35,709 
Dividends, including dividends reinvested in
common stock
— — — — 4 (87,506)— (87,502)
Share-based compensation expense— — — — 45,848 — — 45,848 
Transactions related to employee share-based
compensation plans and other
5,396 — 54 — (8,740)(1,516)— (10,202)
Ending balance776,410 54,745 $7,764 $547 $6,677,875 $(3,862,964)$(82,906)$2,740,316 
See Notes to Condensed Consolidated Financial Statements
5



ADT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended September 30,
20222021
Cash flows from operating activities:
Net income (loss)$21,175 $(282,873)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and intangible asset amortization1,281,871 1,424,090 
Amortization of deferred subscriber acquisition costs118,233 91,364 
Amortization of deferred subscriber acquisition revenue(175,680)(122,908)
Share-based compensation expense49,644 45,848 
Deferred income taxes48,138 (101,986)
Provision for losses on receivables and inventory68,417 29,579 
Loss on extinguishment of debt 37,113 
Goodwill impairment149,385  
Intangible asset impairments 17,883 
Unrealized (gain) loss on interest rate swap contracts(312,603)(115,090)
Change in fair value of financial instruments157,550  
Other non-cash items, net104,293 99,654 
Changes in operating assets and liabilities, net of effects of acquisitions:
Deferred subscriber acquisition costs(304,404)(234,715)
Deferred subscriber acquisition revenue255,760 201,541 
Other, net(140,710)65,853 
Net cash provided by (used in) operating activities1,321,069 1,155,353 
Cash flows from investing activities:
Dealer generated customer accounts and bulk account purchases(500,487)(512,304)
Subscriber system asset expenditures(572,595)(518,780)
Purchases of property and equipment(135,677)(126,678)
Acquisition of businesses, net of cash acquired(13,096)(16,411)
Proceeds from sale of business, net of cash sold26,729  
Other investing, net(13,664)3,524 
Net cash provided by (used in) investing activities(1,208,790)(1,170,649)
Cash flows from financing activities:
Proceeds from long-term borrowings480,000 1,010,729 
Proceeds from receivables facility 212,166 117,922 
Repayment of long-term borrowings, including call premiums(527,595)(1,052,123)
Repayment of receivables facility(81,487)(28,215)
Dividends on common stock(95,164)(87,164)
Payments on finance leases(33,749)(22,566)
Payments on interest rate swaps(26,953)(42,189)
Deferred financing costs(233)(12,358)
Other financing, net(12,757)(8,117)
Net cash provided by (used in) financing activities(85,772)(124,081)
Cash and cash equivalents and restricted cash and restricted cash equivalents:
Net increase (decrease) during the period26,507 (139,377)
Beginning balance33,277 207,747 
Ending balance$59,784 $68,370 
See Notes to Condensed Consolidated Financial Statements

6


ADT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.     DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and Organization
ADT Inc., together with its wholly-owned subsidiaries (collectively, the “Company”), is a leading provider of security, interactive, and smart home solutions serving consumer, small business, and commercial customers in the United States (“U.S.”). Since the acquisition of Compass Solar Group, LLC (now named ADT Solar LLC) (“ADT Solar”) (the “ADT Solar Acquisition”) in December 2021, the Company also provides residential solar and energy storage solutions. The Company primarily conducts business under the ADT brand name.
ADT Inc. was incorporated in the State of Delaware in May 2015 as a holding company with no assets or liabilities. In July 2015, the Company acquired Protection One, Inc. and ASG Intermediate Holding Corp. (collectively, the “Formation Transactions”), which were instrumental in the commencement of the Company’s operations. In May 2016, the Company acquired The ADT Security Corporation (formerly named The ADT Corporation) (“The ADT Corporation”) (the “ADT Acquisition”).
The Company is majority-owned by Prime Security Services TopCo (ML), L.P., which is majority-owned by Prime Security Services TopCo Parent, L.P. (“Ultimate Parent”). Ultimate Parent is majority-owned by Apollo Investment Fund VIII, L.P. and its related funds that are directly or indirectly managed by affiliates of Apollo Global Management, Inc. (together with its subsidiaries and affiliates, “Apollo” or the “Sponsor”).
Basis of Presentation
The condensed consolidated financial statements include the consolidated results of ADT Inc. and its wholly-owned subsidiaries and have been prepared in U.S. dollars in accordance with generally accepted accounting principles in the United States of America (“GAAP”). In addition, the Company uses the equity method of accounting to account for an investment in which it has the ability to exercise significant influence but does not control.
All intercompany transactions have been eliminated. The results of companies acquired are included in the condensed consolidated financial statements from the effective date of acquisition. Certain prior period amounts have been reclassified to conform with the current period presentation.
The condensed consolidated financial statements included herein are unaudited, but in the opinion of management, such financial statements include all adjustments, consisting of normal recurring adjustments, necessary to summarize fairly the Company’s financial position, results of operations, and cash flows for the interim periods presented. The interim results reported herein should not be taken as indicative of results that may be expected for future interim periods or the full year.
The Condensed Consolidated Balance Sheet as of December 31, 2021 included herein was derived from the audited consolidated financial statements as of that date but does not include all the footnote disclosures required in the annual consolidated financial statements. For a more comprehensive understanding of the Company and its interim results, these condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Annual Report”), which was filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 1, 2022.
Segments
The Company has three operating and reportable segments organized based on customer type: Consumer and Small Business (“CSB”), Commercial, and Solar. The Company’s segments are based on the manner in which the Company’s Chief Executive Officer, who is the chief operating decision maker (the “CODM”), evaluates performance and makes decisions about how to allocate resources.
The accounting policies of the Company’s reportable segments are the same as those of the Company.
Refer to Note 3 “Segment Information” for additional information.
7


ADT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Use of Estimates
The preparation of the condensed consolidated financial statements in accordance with GAAP requires the Company to select accounting policies and make estimates that affect amounts reported in the condensed consolidated financial statements and the accompanying notes. The Company’s estimates are based on the relevant information available at the end of each period. Actual results could differ materially from these estimates under different assumptions or market conditions.
The Company considered recent impacts from macroeconomic conditions such as inflationary pressures, rising interest rates, and supply chain disruptions as well as the on-going impacts of the COVID-19 Pandemic (as defined below) in the assessment of its financial position, results of operations, and cash flows, as well as certain accounting estimates, as of and for the periods presented.
COVID-19 Pandemic - During March 2020, the World Health Organization declared the outbreak of a novel coronavirus as a pandemic (the “COVID-19 Pandemic”). As of September 30, 2022, the Company’s response plan has not materially changed from that described in the 2021 Annual Report.
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
Reference Rate Reform - Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2021-01, Reference Rate Reform (Topic 848): Scope, amends ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, and clarifies the scope and guidance of Topic 848 to allow derivatives impacted by the reference rate reform to qualify for certain optional expedients and exceptions for contract modifications and hedge accounting.
The guidance is optional and may be applied prospectively to contract modifications made on or before December 31, 2022. As of September 30, 2022, this guidance had no impact on the condensed consolidated financial statements. However, the Company will continue to evaluate this guidance.
Recently Issued Accounting Pronouncements
Vintage Disclosures for Financing Receivables - ASU 2022-02, Financial Instruments — Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, requires reporting entities to disclose current-period gross write-offs by year of origination for financing receivables, among other requirements.
This guidance becomes effective January 1, 2023, and should be applied prospectively. Early adoption is permitted. The Company is currently evaluating this guidance.
Fair Value of Equity Investments - ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, states an entity should not consider the contractual sale restriction when measuring the equity security’s fair value and introduces new disclosure requirements related to such equity securities.
This guidance becomes effective January 1, 2024, and should be applied prospectively with any adjustments recognized in earnings and disclosed on the date of adoption. Early adoption is permitted. The Company is currently evaluating this guidance.
Supplier Finance Program Obligations - ASU 2022-04, Liabilities — Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations, requires that a reporting entity who is a buyer in a supplier finance program disclose qualitative and quantitative information about its supplier finance programs, including a roll-forward of the obligations.
This guidance becomes effective January 1, 2023, and should be applied retrospectively, except for the amendment on roll-forward information, which becomes effective January 1, 2024, and should be applied prospectively. Early adoption is permitted. The Company is currently evaluating this guidance.
8


ADT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Summary of Significant Accounting Policies
Unless otherwise noted, the Company’s accounting policies used in the preparation of these condensed consolidated financial statements as discussed below, or included within the respective footnotes herein, do not materially differ from those disclosed in the 2021 Annual Report.
Cash and Cash Equivalents and Restricted Cash and Restricted Cash Equivalents
Cash and cash equivalents that are restricted for a specific purpose and cannot be presented within the general cash and cash equivalents account are included in restricted cash and restricted cash equivalents, which is reflected in prepaid expenses and other current assets.
The following table reconciles the amounts below reported in the Condensed Consolidated Balance Sheets to the total of the same such amounts shown in the Condensed Consolidated Statements of Cash Flows:
(in thousands)September 30, 2022December 31, 2021
Cash and cash equivalents$45,734 $24,453 
Restricted cash and restricted cash equivalents14,050 8,824 
Ending balance$59,784 $33,277 
Subscriber System Assets and Deferred Subscriber Acquisition Costs
Subscriber system assets represent capitalized equipment and installation costs incurred in connection with transactions in which the Company retains ownership of the security system. Upon termination of the contract with the customer, the Company may retrieve such assets. Deferred subscriber acquisition costs represent selling expenses (primarily commissions) that are incremental to acquiring customers.
The Company records subscriber system assets and deferred subscriber acquisition costs in the Condensed Consolidated Balance Sheets as these assets embody a probable future economic benefit for the Company through the generation of future monitoring and related services revenue.
Subscriber system assets and any related deferred subscriber acquisition costs are accounted for on a pooled basis based on the month and year of customer acquisition. The Company depreciates and amortizes these pooled costs using an accelerated method over the estimated life of the customer relationship, which is 15 years.
(in thousands)September 30, 2022December 31, 2021
Gross carrying amount$6,054,439 $5,499,703 
Accumulated depreciation(3,014,862)(2,632,175)
Subscriber system assets, net$3,039,577 $2,867,528 
Depreciation of subscriber system assets and amortization of deferred subscriber acquisition costs are reflected in depreciation and intangible asset amortization and selling, general, and administrative expenses, respectively, as follows:
Three Months Ended September 30,Nine Months Ended September 30,
(in thousands)2022202120222021
Depreciation of subscriber system assets$138,975 $129,131 $409,583 $376,037 
Amortization of deferred subscriber acquisition costs
$42,244 $32,534 $118,233 $91,364 
9


ADT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Accrued Expenses and Other Current Liabilities
(in thousands)September 30, 2022December 31, 2021
Accrued interest$69,435 $124,579 
Payroll-related accruals198,667 196,165 
Operating lease liabilities31,022 37,359 
Fair value of interest rate swaps(1)
 50,360 
Fair value of other financial instruments(2)
199,488  
Other accrued liabilities410,560 328,782 
Accrued expenses and other current liabilities$909,172 $737,245 
________________
(1)    Refer to Note 8 “Derivative Financial Instruments” for presentation of the aggregate fair value of interest rate swaps.
(2)    Represents a contingent forward purchase contract (the “Forward Contract”) (as defined and discussed in Note 10 “Equity”).
Radio Conversion Program
The Company commenced a program in 2019 to replace the 3G and Code-Division Multiple Access (“CDMA”) cellular equipment used in many of its security systems to prepare for the retirement of the 3G and CDMA networks during 2022. From inception of this program through September 30, 2022, the Company incurred $295 million of radio conversion costs, net of related incremental radio conversion revenue.
Radio conversion costs and radio conversion revenue are reflected in selling, general, and administrative expenses and monitoring and related services revenue, respectively, as follows:
Three Months Ended September 30,Nine Months Ended September 30,
(in thousands)2022202120222021
Radio conversion costs$3,082 $61,648 $29,457 $202,075 
Radio conversion revenue
$7,160 $9,353 $23,051 $30,416 
Fair Value of Financial Instruments
The Company’s financial instruments primarily consist of cash and cash equivalents, restricted cash and restricted cash equivalents, accounts receivable, retail installment contract receivables, accounts payable, debt, and derivative and other financial instruments. Due to their short-term and/or liquid nature, the fair values of cash, restricted cash, accounts receivable, and accounts payable approximate their respective carrying amounts.
Cash Equivalents - All highly liquid investments with original maturities of three months or less from the time of purchase are considered to be cash equivalents. Included in cash and cash equivalents as applicable from time to time are investments in money market mutual funds. These investments are classified as Level 1 fair value measurements, which represent unadjusted quoted prices in active markets for identical assets or liabilities.
Investments in money market mutual funds were not material as of September 30, 2022, or December 31, 2021.
Long-Term Debt Instruments - The fair values of the Company’s long-term debt instruments are determined using broker-quoted market prices, which represent quoted prices for similar assets or liabilities as well as other observable market data, and are classified as Level 2 fair value measurements. The carrying amounts of debt outstanding, if any, under the Company’s first lien revolving credit facility (the “First Lien Revolving Credit Facility”) and its uncommitted receivables securitization financing agreement (the “Receivables Facility”) approximate their fair values as interest rates on these borrowings approximate current market rates.
September 30, 2022December 31, 2021
(in thousands)Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Long-term debt instruments, excluding finance lease obligations, subject to fair value disclosures$9,707,310 $9,043,489 $9,599,610 $10,043,877 
10


ADT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Derivative Financial Instruments - Derivative financial instruments are reported at fair value as either assets or liabilities. These fair values are primarily calculated using discounted cash flow models utilizing observable inputs, such as quoted forward interest rates, and incorporate credit risk adjustments to reflect the risk of default by the counterparty or the Company. The resulting fair values are classified as Level 2 fair value measurements.
Refer to Note 8 “Derivative Financial Instruments” for the fair values of the Company’s derivative financial instruments.
Forward Contract - The Forward Contract is reported at fair value within accrued and other current liabilities as disclosed above. The fair value was calculated using a discounted cash flow analysis as the difference between the present value of the cash consideration to be paid and the value of the Common Stock to be tendered as of the measurement dates. The resulting fair value is classified as Level 2 fair value measurements.
During the three and nine months ended September 30, 2022, changes in fair value of $158 million are included in other income (expense). Refer to Note 10 “Equity” for additional information.
Retail Installment Contract Receivables - The fair values of the Company’s retail installment contract receivables are determined using a discounted cash flow model and are classified as Level 3 fair value measurements.
September 30, 2022December 31, 2021
(in thousands)Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Retail installment contract receivables, net$497,799 $375,653 $330,605 $255,147 
2.     REVENUE AND RECEIVABLES
Revenue
The Company allocates the transaction price to each performance obligation based on relative standalone selling price, which is determined using observable internal and external pricing, profitability, and operational metrics.
Disaggregated Revenue
Three Months Ended September 30,Nine Months Ended September 30,
(in thousands)2022202120222021
CSB:
Monitoring and related services$1,021,811 $975,810 $3,026,281 $2,892,291
Installation, product, and other88,829 59,790 235,437 204,561
Total CSB1,110,640 1,035,600 3,261,718 3,096,852
Commercial:
Monitoring and related services137,830 122,579 400,448 352,384
Installation, product, and other176,468 158,823 501,513 476,887
Total Commercial314,298 281,402 901,961 829,271
Solar:
Installation, product, and other179,153 586,189 
Total Solar179,153 586,189  
Total revenue$1,604,091 $1,317,002 $4,749,868 $3,926,123
Revenue is recognized in the Condensed Consolidated Statements of Operations net of sales and other taxes. Amounts collected from customers for sales and other taxes are reported as a liability net of the related amounts remitted.
When customers terminate a contract early, contract termination charges are assessed in accordance with the contract terms and are recognized in monitoring and related services revenue when collectability is probable.
11


ADT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Company-Owned - In transactions in which the Company provides monitoring and related services but retains ownership of the security system (referred to as Company-owned transactions), the Company’s performance obligations primarily include (i) monitoring and related services and (ii) a material right associated with the one-time non-refundable fees in connection with the initiation of a monitoring contract which the customer will not be required to pay again upon a renewal of the contract (referred to as deferred subscriber acquisition revenue). Since March 2021, substantially all new CSB transactions have taken place under a Company-owned model.
The portion of the transaction price associated with monitoring and related services is recognized when these services are provided to the customer and is reflected in monitoring and related services revenue.
The portion of the transaction price associated with the material right is deferred upon initiation of a monitoring contract and reflected as deferred subscriber acquisition revenue in the Condensed Consolidated Balance Sheets. Deferred subscriber acquisition revenue is amortized on a pooled basis over the estimated life of the customer relationship using an accelerated method consistent with the treatment of subscriber system assets and deferred subscriber acquisition costs and is reflected in installation, product, and other revenue.
Three Months Ended September 30,Nine Months Ended September 30,
(in thousands)
2022202120222021
Amortization of deferred subscriber acquisition revenue$63,796 $45,020 $175,680 $122,908 
Customer-Owned - In transactions involving security systems sold outright to the customer (referred to as outright sales), the Company’s performance obligations generally include the sale and installation of the system and any monitoring and related services.
The portion of the transaction price associated with the sale and installation of a system is recognized either at a point in time or over time based upon the nature of the transaction and contractual terms and is reflected in installation, product, and other revenue. For revenue recognized over time, progress toward complete satisfaction of the performance obligation is primarily measured using a cost-to-cost measure of progress method. The cost input driving revenue recognition for these contracts is based primarily on contract cost incurred to date compared to total estimated contract cost. This measure of progress method includes forecasts based on the best information available and reflects the Company’s judgment to faithfully depict the value of the services transferred to the customer. Approximately half of installation, product, and other revenue generated by the Commercial segment is recognized over time.
The portion of the transaction price associated with monitoring and related services revenue is recognized when services are provided to the customer.
Solar - In transactions within the Solar business, the Company’s performance obligations generally include the sale and installation of a solar system, and may also include additional performance obligations such as roofing services or the sale and installation of additional products such as batteries. Revenue is recognized when control over the products and services are transferred to the customer and is reflected in installation, product, and other revenue.
The Company also enters into agreements with third-party lenders in order to access loan products for the Company’s Solar customers. These lenders remit the amount of such loans, net of fees, upon installation or based on other contractual terms with the third-party lenders. These fees are recorded as a reduction of installation, product, and other revenue and were approximately $29 million and $107 million during the three and nine months ended September 30, 2022, respectively.
In the second quarter of 2022, one of the Company’s third-party lenders that provided loan products for the Company’s Solar customers entered a formal insolvency proceeding to effectuate the wind-down of its operations. During the nine months ended September 30, 2022, charges to the provision for credit losses and revenue associated with the estimated amount of receivables and rebates that are not expected to be collected from this lender were $11 million.
12


ADT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Product and System Sales
Revenue from product and system sales is included in installation, product, and other revenue. Cost of revenue from product and system sales is exclusive of depreciation and amortization.
Three Months Ended September 30,Nine Months Ended September 30,
(in thousands)
2022202120222021
Revenue from product and system sales$291,367 $171,030 $891,129 $551,652 
Cost of revenue from product and system sales$225,575 $145,397 $666,869 $452,852 
Deferred Revenue
Deferred revenue represents customer billings for services not yet rendered and is primarily related to recurring monitoring and related services. In addition, payments received for the sale and installation of a system after the agreement is signed but before performance obligations are satisfied are recorded as deferred revenue.
These amounts are recorded as current deferred revenue in the Condensed Consolidated Balance Sheets as the Company expects to satisfy any remaining performance obligations, as well as recognize the related revenue, within the next twelve months when performance obligations are satisfied. Accordingly, the Company has applied the practical expedient regarding deferred revenue to exclude the value of remaining performance obligations if (i) the contract has an original expected term of one year or less or (ii) the Company recognizes revenue in proportion to the amount it has the right to invoice for services performed.
Accounts Receivable
Accounts receivable represent unconditional rights to consideration from customers in the ordinary course of business and are generally due in one year or less. The Company’s accounts receivable are recorded at amortized cost less an allowance for credit losses not expected to be recovered. The allowance for credit losses is recognized at inception and reassessed each reporting period.
The Company evaluates its allowance for credit losses on accounts receivable in pools based on customer type. For each customer pool, the allowance for credit losses is estimated based on the delinquency status of the underlying receivables and the related historical loss experience, as adjusted for current and expected future conditions, if applicable. The allowance for credit losses is not material for the individual pools of customers.
Changes in the Allowance for Credit Losses:
Nine Months Ended September 30,
(in thousands)20222021
Beginning balance$54,032 $