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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, 2021
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-20210930_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 November 3, 2021, there were 767,022,483 shares outstanding (excluding 9,503,668 unvested shares of common stock) 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, 2021December 31, 2020
Assets
Current assets:
Cash and cash equivalents$61,207 $204,998 
Accounts receivable, net of allowance for credit losses of $60,110 and $68,342, respectively
363,060 336,033 
Inventories, net214,205 174,839 
Work-in-progress55,176 41,312 
Prepaid expenses and other current assets178,015 210,212 
Total current assets871,663 967,394 
Property and equipment, net334,862 325,716 
Subscriber system assets, net2,817,855 2,663,228 
Intangible assets, net5,520,747 5,906,690 
Goodwill5,244,942 5,236,302 
Deferred subscriber acquisition costs, net796,574 654,019 
Other assets435,279 363,587 
Total assets$16,021,922 $16,116,936 
Liabilities and stockholders' equity
Current liabilities:
Current maturities of long-term debt$101,358 $44,764 
Accounts payable361,020 321,595 
Deferred revenue339,182 345,582 
Accrued expenses and other current liabilities607,276 584,151 
Total current liabilities1,408,836 1,296,092 
Long-term debt9,508,341 9,447,780 
Deferred subscriber acquisition revenue1,098,769 832,166 
Deferred tax liabilities900,388 990,899 
Other liabilities365,272 510,663 
Total liabilities13,281,606 13,077,600 
Commitments and contingencies (See Note 12)
Stockholders' equity:
Preferred stock—authorized 1,000,000 shares of $0.01 par value; zero issued and outstanding as of September 30, 2021 and December 31, 2020.
  
Common stock—authorized 3,999,000,000 shares of $0.01 par value; issued and outstanding shares of 776,410,398 and 771,013,638 as of September 30, 2021 and December 31, 2020, respectively.
7,764 7,710 
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, 2021 and December 31, 2020.
547 547 
Additional paid-in capital6,677,875 6,640,763 
Accumulated deficit(3,862,964)(3,491,069)
Accumulated other comprehensive loss(82,906)(118,615)
Total stockholders' equity2,740,316 3,039,336 
Total liabilities and stockholders' equity$16,021,922 $16,116,936 
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,
2021202020212020
Monitoring and related services$1,098,389 $1,045,677 $3,244,675 $3,133,013 
Installation and other218,613 253,247 681,448 867,050 
Total revenue1,317,002 1,298,924 3,926,123 4,000,063 
Cost of revenue (exclusive of depreciation and amortization shown separately below)371,985 357,895 1,134,736 1,142,228 
Selling, general, and administrative expenses448,634 410,914 1,343,872 1,278,929 
Depreciation and intangible asset amortization480,010 473,346 1,424,090 1,440,239 
Merger, restructuring, integration, and other(6,723)(6,117)18,588 114,715 
Operating income23,096 62,886 4,837 23,952 
Interest expense, net(133,275)(156,759)(347,524)(569,391)
Loss on extinguishment of debt(36,957)(48,916)(37,113)(114,759)
Other income1,511 1,992 4,847 6,572 
Loss before income taxes(145,625)(140,797)(374,953)(653,626)
Income tax benefit36,496 27,699 92,080 133,494 
Net loss$(109,129)$(113,098)$(282,873)$(520,132)
Net (loss) income per share - basic:
Common stock$(0.13)$(0.15)$(0.35)$(0.68)
Class B common stock$(0.13)$0.05 $(0.35)$(0.10)
Weighted-average shares outstanding - basic:
Common stock766,814 760,913 765,162 760,203 
Class B common stock54,745 8,331 54,745 2,797 
Net loss per share - diluted:
Common stock$(0.13)$(0.15)$(0.35)$(0.68)
Class B common stock$(0.13)$(0.07)$(0.35)$(0.44)
Weighted-average shares outstanding - diluted:
Common stock766,814 760,913 765,162 760,203 
Class B common stock54,745 16,640 54,745 5,587 
See Notes to Condensed Consolidated Financial Statements
2



ADT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
(in thousands)
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Net loss$(109,129)$(113,098)$(282,873)$(520,132)
Other comprehensive income (loss), net of tax:
Cash flow hedges11,790 11,607 34,827 (75,891)
Defined benefit pension plans(2)(16)882 (21)
Total other comprehensive income (loss), net of tax 11,788 11,591 35,709 (75,912)
Comprehensive loss$(97,341)$(101,507)$(247,164)$(596,044)
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, 2021
Number of Common SharesNumber of Class B Common SharesCommon StockClass B Common StockAdditional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive LossTotal Stockholders' Equity
Beginning balance776,310 54,745 $7,763 $547 $6,665,145 $(3,724,139)$(94,694)$2,854,622 
Net loss— — — — — (109,129)— (109,129)
Other comprehensive income, 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 

Three Months Ended September 30, 2020
Number of Common SharesNumber of Class B Common SharesCommon StockClass B Common StockAdditional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive LossTotal Stockholders' Equity
Beginning balance770,429  $7,704 $ $6,139,135 $(3,206,845)$(145,879)$2,794,115 
Net loss— — — — — (113,098)— (113,098)
Other comprehensive income, net of tax— — — — — — 11,591 11,591 
Issuance of common stock, net of expenses 54,745  547 447,088 — — 447,635 
Dividends, including dividends reinvested in common stock1    4 (28,963)— (28,959)
Share-based compensation expense  — — 26,431 — — 26,431 
Transactions related to employee share-based compensation plans and other293  3  1,208 (450)— 761 
Ending balance770,723 54,745 $7,707 $547 $6,613,866 $(3,349,356)$(134,288)$3,138,476 
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, 2021
Number of Common SharesNumber of Class B Common SharesCommon StockClass B Common StockAdditional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive LossTotal Stockholders' Equity
Beginning balance771,014 54,745 $7,710 $547 $6,640,763 $(3,491,069)$(118,615)$3,039,336 
Net loss— — — — — (282,873)— (282,873)
Other comprehensive income, 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 other5,396  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 
Nine Months Ended September 30, 2020
Number of Common SharesNumber of Class B Common SharesCommon StockClass B Common StockAdditional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive LossTotal Stockholders' Equity
Beginning balance753,622  $7,536 $— $5,977,402 $(2,742,193)$(58,376)$3,184,369 
Adoption of accounting standard, net of tax— — — — — (2,157)— (2,157)
Net loss— — — — — (520,132)— (520,132)
Other comprehensive loss, net of tax— — — — — — (75,912)(75,912)
Issuance of common stock, net of expenses16,279 54,745 163 547 560,766 — — 561,476 
Dividends, including dividends reinvested in common stock2    11 (82,847)— (82,836)
Share-based compensation expense  — — 74,758 — — 74,758 
Transactions related to employee share-based compensation plans and other820  8  929 (2,027)— (1,090)
Ending balance770,723 54,745 $7,707 $547 $6,613,866 $(3,349,356)$(134,288)$3,138,476 
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,
20212020
Cash flows from operating activities:
Net loss$(282,873)$(520,132)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and intangible asset amortization1,424,090 1,440,239 
Amortization of deferred subscriber acquisition costs91,364 70,226 
Amortization of deferred subscriber acquisition revenue(122,908)(90,346)
Share-based compensation expense45,848 74,758 
Deferred income taxes(101,986)(147,007)
Provision for losses on receivables and inventory29,579 99,019 
Loss on extinguishment of debt37,113 114,759 
Intangible asset impairments17,883  
Unrealized (gain) loss on interest rate swap contracts(115,090)89,589 
Other non-cash items, net99,654 103,688 
Changes in operating assets and liabilities, net of effects of acquisitions:
Deferred subscriber acquisition costs(234,715)(170,247)
Deferred subscriber acquisition revenue201,541 124,621 
Other, net65,853 (195,898)
Net cash provided by operating activities1,155,353 993,269 
Cash flows from investing activities:
Dealer generated customer accounts and bulk account purchases(512,304)(265,131)
Subscriber system asset expenditures(518,780)(272,512)
Purchases of property and equipment(126,678)(112,317)
Acquisition of businesses, net of cash acquired(16,411)(182,154)
Other investing, net3,524 31,839 
Net cash used in investing activities(1,170,649)(800,275)
Cash flows from financing activities:
Proceeds from issuance of common stock 450,000 
Proceeds from long-term borrowings1,010,729 2,640,000 
Proceeds from receivables facility117,922 43,748 
Repayment of long-term borrowings, including call premiums(1,074,689)(2,748,095)
Repayment of receivables facility(28,215)(2,456)
Dividends on common stock(87,164)(80,298)
Deferred financing costs(12,358)(27,962)
Other financing, net(50,306)(25,781)
Net cash (used in) provided by financing activities(124,081)249,156 
Cash and cash equivalents and restricted cash and restricted cash equivalents:
Net (decrease) increase during the period(139,377)442,150 
Beginning balance207,747 48,736 
Ending balance$68,370 $490,886 
Supplemental schedule of non-cash investing and financing activities not disclosed elsewhere:
Issuance of shares for acquisition of business$ $113,841 
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
Organization and Business
ADT Inc., together with its wholly-owned subsidiaries (collectively, the “Company”), is a leading provider of security, automation, and smart home solutions serving consumers and businesses in the United States (“U.S.”). 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 primarily conducts business under the ADT brand name.
In January 2018, the Company completed an initial public offering (“IPO”) and its common stock (“Common Stock”) began trading on the New York Stock Exchange under the symbol “ADT.”
In September 2020, the Company issued and sold 54,744,525 shares of Class B common stock, par value of $0.01 per share (“Class B Common Stock”), for an aggregate purchase price of $450 million to Google LLC (“Google”) in a private placement pursuant to a securities purchase agreement dated July 31, 2020 (the “Securities Purchase Agreement”).
The Company 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 and Significant Accounting Policies
The preparation of the condensed consolidated financial statements in accordance with generally accepted accounting principles in the United States of America (“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 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 in these condensed consolidated financial statements should not be taken as indicative of results that may be expected for future interim periods or the full year. 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, 2020 (the “2020 Annual Report”), which was filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 25, 2021. Unless otherwise noted, the Company’s accounting policies used in the preparation of these condensed consolidated financial statements do not differ from those used in the annual consolidated financial statements.
The Condensed Consolidated Balance Sheet as of December 31, 2020 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.
The condensed consolidated financial statements include the accounts of ADT Inc. and its wholly-owned subsidiaries and have been prepared in U.S. dollars in accordance with GAAP. All intercompany transactions have been eliminated. Certain prior period amounts have been reclassified to conform with the current period presentation.
Segment Change
Effective in the first quarter of 2021, 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 changed. Therefore, the Company now reports results in two operating and reportable segments, Consumer and Small Business (“CSB”) and Commercial, rather than a single operating and reportable segment. Where applicable, prior periods have been
7


retrospectively adjusted to reflect the new operating and reportable segment structure. The accounting policies of the Company’s reportable segments are the same as those of the Company.
The Company organizes its segments based on customer type as follows:
Consumer and Small Business (CSB) - Customers in the CSB segment are comprised of residential homeowners, small business operators, and other individual consumers. The CSB segment primarily includes (i) revenue and operating costs from the sale, installation, servicing, and monitoring of integrated security and automation systems, as well as other offerings such as mobile security and home health solutions; (ii) other operating costs associated with support functions related to these operations; and (iii) general corporate costs and other income and expense items not included in the Commercial segment.
Where applicable, results for the Company’s Canadian operations prior to its sale in the fourth quarter of 2019 are included in the CSB segment based on the primary customer market served in Canada.
Commercial - Customers in the Commercial segment are comprised of larger businesses with more expansive facilities (typically larger than 10,000 square feet) and/or multi-site operations, which often require more sophisticated integrated solutions. The Commercial segment primarily includes (i) revenue and operating costs from the sale, installation, servicing, and monitoring of integrated security and automation systems, fire detection and suppression systems, and other related offerings; (ii) other operating costs associated with support functions related to these operations; and (iii) dedicated corporate and other costs.
Refer to Note 13 “Segment Information” for additional information on the Company’s segments.
COVID-19 Pandemic
During March 2020, the World Health Organization declared the outbreak of a novel coronavirus as a pandemic (the “COVID-19 Pandemic”). While responses have varied by individuals, businesses, and state and local municipalities, the COVID-19 Pandemic has had certain notable adverse impacts on general economic conditions, including the temporary and permanent closures of many businesses, increased governmental regulations, supply chain disruptions, and changes in consumer spending due to significant unemployment and other effects attributable to the COVID-19 Pandemic. To protect its employees and serve its customers, the Company implemented and is continuously evolving certain measures, such as (i) detailed protocols for infectious disease safety for employees, (ii) employee daily wellness checks, and (iii) certain work from home actions, including for the majority of the Company’s call center professionals.
The Company considered the on-going and pervasive economic impact of the COVID-19 Pandemic in the assessment of its financial position, results of operations, cash flows, and certain accounting estimates as of and for the three and nine months ended September 30, 2021. However, the evolving and uncertain nature of the COVID-19 Pandemic, as well as the evolving nature of the regulatory environment which may require vaccine mandates or other actions that could impact the Company’s employee base or impose additional costs on the business, could materially impact the Company’s estimates and financial results in future reporting periods.
Cash and Cash Equivalents and Restricted Cash and Restricted 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. Restricted cash and restricted cash equivalents are cash and cash equivalents that are restricted for a specific purpose and cannot be included in the general cash and cash equivalents account. Restricted cash and restricted cash equivalents are reflected in prepaid expenses and other current assets in the Condensed Consolidated Balance Sheets.
The amount of cash and cash equivalents and restricted cash and restricted cash equivalents reported in the Condensed Consolidated Balance Sheets as reconciled to the total of the same of such amounts shown in the Condensed Consolidated Statements of Cash Flows is as follows:
(in thousands)September 30, 2021December 31, 2020
Cash and cash equivalents$61,207 $204,998 
Restricted cash and restricted cash equivalents7,163 2,749 
Ending balance$68,370 $207,747 
8


Subscriber System Assets, net and Deferred Subscriber Acquisition Costs, net
Subscriber system assets represent capitalized equipment and installation costs incurred in connection with transactions in which the Company retains ownership of the security system. 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. Upon customer termination, the Company may retrieve such assets.
Subscriber system assets, net reflected in the Condensed Consolidated Balance Sheets was as follows:
(in thousands)September 30, 2021December 31, 2020
Gross carrying amount$5,326,889 $4,815,286 
Accumulated depreciation(2,509,034)(2,152,058)
Subscriber system assets, net$2,817,855 $2,663,228 
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.
Depreciation and amortization of subscriber system assets and deferred subscriber acquisition costs are reflected in depreciation and intangible asset amortization and selling, general, and administrative expenses, respectively, in the Condensed Consolidated Statements of Operations as follows:
Three Months Ended September 30,Nine Months Ended September 30,
(in thousands)2021202020212020
Depreciation of subscriber system assets$129,131 $120,328 $376,037 $379,819 
Amortization of deferred subscriber acquisition costs
$32,534 $24,810 $91,364 $70,226 
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities reflected in the Condensed Consolidated Balance Sheets consisted of the following:
(in thousands)September 30, 2021December 31, 2020
Accrued interest$69,863 $123,935 
Payroll-related accruals156,326 99,771 
Operating lease liabilities33,085 30,689 
Fair value of interest rate swaps61,151 65,462 
Other accrued liabilities286,851 264,294 
Accrued expenses and other current liabilities$607,276 $584,151 
Radio Conversion Costs
During 2019, the Company commenced a program to replace the 3G and Code-Division Multiple Access (“CDMA”) cellular equipment used in many of its security systems as a result of the cellular network providers notifying the Company they will be retiring their 3G and CDMA networks during 2022.
9


Radio conversion costs and radio conversion revenue are reflected in selling, general, and administrative expenses and monitoring and related services revenue, respectively, in the Condensed Consolidated Statements of Operations as follows:
Three Months Ended September 30,Nine Months Ended September 30,
(in thousands)2021202020212020
Radio conversion costs$61,648 $21,066 $202,075 $50,424 
Radio conversion revenue
9,353 8,425 30,416 26,113 
Radio conversion costs, net$52,295 $12,641 $171,659 $24,311 
The Company estimates it will incur approximately $260 million - $290 million of net costs related to this program, which include costs incurred associated with radio replacements and cellular network conversions net of any related incremental revenue, some of which may be received after the applicable sunset dates. From inception of this program through September 30, 2021, the Company incurred $249 million of net costs.
As of September 30, 2021, the Company provided services to approximately 480 thousand remaining customer sites transmitting signals via 3G or CDMA networks, which currently have sunset dates in February and December 2022. The Company expects to incur any remaining costs through 2022, with the majority of costs expected to be incurred during the fourth quarter of 2021, and expects to continue collecting incremental revenue related to the program through 2023.
During November 2020, the Company acquired Cell Bounce, a technology company with proprietary radio conversion technology in the form of a user-installable device, which was intended to facilitate the transition of customers on 3G networks in a cost efficient and timely manner. As a result of worldwide shortages for certain electronic components impacting Cell Bounce device production, the Company expects to continue to replace 3G radios primarily using traditional methods and to use Cell Bounce product to complement these methods to the extent possible. The cost and pace of the program is influenced by the ability to access customer sites due to various factors such as the COVID-19 Pandemic; the ability to convert customers during routine service visits whenever possible; cost-sharing opportunities with suppliers, carriers, and customers; and the extent to which the Company is able to implement its Cell Bounce solution. Any supply chain disruptions may impact the Company’s ability to convert customers prior to the sunset dates, and the Company may see revenue attrition for any customers not converted by such time.
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 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 - Included in cash and cash equivalents are investments in money market mutual funds. The Company had no investments in money market mutual funds as of September 30, 2021 and $143 million of such investments as of December 31, 2020. These investments are classified as Level 1 fair value measurements, which represent unadjusted quoted prices in active markets for identical assets or liabilities.
Long-Term Debt Instruments - The fair values of the Company’s debt instruments were determined using broker-quoted market prices, which represent quoted prices for similar assets or liabilities as well as other observable market data. The carrying amounts of debt outstanding, if any, under the Company’s revolving credit facility and receivables facility approximate fair values as interest rates on these borrowings approximate current market rates. The resulting fair values are classified as Level 2 fair value measurements.
The total carrying amount and fair value of long-term debt instruments subject to fair value disclosures were as follows:
September 30, 2021December 31, 2020
(in thousands)Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Long-term debt instruments, excluding finance lease obligations$9,535,213 $9,983,945 $9,431,216 $10,127,291 
10


Derivative Financial Instruments - Derivative financial instruments are reported at fair value as either assets or liabilities in the Condensed Consolidated Balance Sheets. 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.
Retail Installment Contract Receivables, net - The fair value of the Company’s retail installment contract receivables was determined using a discounted cash flow model. The resulting fair value is classified as a Level 3 fair value measurement.
The total carrying amount and fair value of retail installment contract receivables were as follows:
September 30, 2021December 31, 2020
(in thousands)Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Retail installment contract receivables, net$280,830 $216,633 $141,591 $112,676 
Guarantees
In the normal course of business, the Company is liable for contract completion and product performance. The Company’s guarantees primarily relate to standby letters of credit related to its insurance programs and totaled $76 million and $83 million as of September 30, 2021 and December 31, 2020, respectively. The Company does not believe such obligations will materially affect its financial position, results of operations, or cash flows.
Recently Adopted Accounting Pronouncements
Financial Accounting Standards Board Accounting Standards Update (“ASU”) 2020-06, Debt with Conversion and Other Options and Derivatives and Hedging - Contracts in Entity’s Own Equity, provides guidance to ease the potential burden of accounting for convertible instruments, derivatives related to an entity’s own equity, and the related earnings per share considerations. The Company early adopted the guidance as of January 1, 2021. The impact from adoption was not material.
ASU 2021-01, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, amends ASU 2020-04 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 is effective for a limited period of time through December 31, 2022. As of September 30, 2021, this guidance had no impact on the condensed consolidated financial statements. However, the Company will continue to evaluate this guidance.
Recently Issued Accounting Pronouncements
ASU 2021-08, Business Combinations: Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, requires entities to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, as if the acquiring entity had originated the related revenue contracts. This guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently evaluating the impact of the guidance.
2. Revenue and Receivables
Revenue
The Company generates revenue primarily through contractual monthly recurring fees received for monitoring and related services provided to customers. The Company’s performance obligations generally include monitoring, related services (such as maintenance agreements), and the sale and installation of security systems or a material right in transactions in which the Company retains ownership of the security system (as discussed below). The transaction price is allocated to each performance obligation based on relative standalone selling price, which is determined using observable internal and external pricing, profitability, and operational metrics.
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The following table presents the Company’s disaggregated revenue:
Three Months Ended September 30,Nine Months Ended September 30,
(in thousands)2021202020212020
CSB:
Monitoring and related services$975,810 $940,493 $2,892,291 $2,814,482
Installation and other59,790 119,895 204,561 459,259
Total CSB1,035,600 1,060,388 3,096,852 3,273,741
Commercial:
Monitoring and related services122,579 105,184 352,384 318,531
Installation and other158,823 133,352 476,887 407,791
Total Commercial281,402 238,536 829,271 726,322
Total revenue$1,317,002 $1,298,924 $3,926,123 $4,000,063
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.
Termination charges are assessed in accordance with the terms of the contract when customers terminate a contract early. Contract termination charges are recognized in revenue when collectability is probable and are reflected in monitoring and related services revenue in the Condensed Consolidated Statements of Operations.
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 monitoring and related services, as well as 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).
The portion of the transaction price associated with monitoring and related services is recognized when the services are provided to the customer and is reflected in monitoring and related services revenue in the Condensed Consolidated Statements of Operations.
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.
Amortization of deferred subscriber acquisition revenue is reflected in installation and other revenue in the Condensed Consolidated Statements of Operations as follows:
Three Months Ended September 30,Nine Months Ended September 30,
(in thousands)
2021202020212020
Amortization of deferred subscriber acquisition revenue$45,020 $31,329 $122,908 $90,346 
Customer-Owned - In transactions involving 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 as well as 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 and other revenue in the Condensed Consolidated Statements of Operations. 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 contracts where revenue is recognized over time 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 and other revenue generated by the Commercial segment is recognized over time.
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The portion of the transaction price associated with monitoring and related services is recognized when services are provided to the customer and is reflected in monitoring and related services revenue in the Condensed Consolidated Statements of Operations.
Revenue and cost of revenue from products in outright sales were as follows:
Three Months Ended September 30,Nine Months Ended September 30,
(in thousands)
2021202020212020
Revenue from product sales$171,030 $220,599 $551,652 $773,377 
Cost of revenue from product sales$145,397 $160,009 $452,852 $562,691 
Deferred Revenue - Customer billings for services not yet rendered are deferred and recognized as revenue as services are provided. These fees 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. 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.
Revenue Model Initiative and Equipment Ownership Model Change
In February 2020, the Company launched a new revenue model initiative for certain residential customers, which (i) revised the amount and nature of fees due at installation, (ii) introduced a 60-month monitoring contract option, and (iii) introduced a new retail installment contract option (as discussed below).
Due to the requirements of the Company’s initial third-party consumer financing program, the Company transitioned its security system ownership model from a predominately Company-owned model to a predominately customer-owned model in February 2020. In March 2020, the Company entered into an uncommitted receivables securitization financing agreement (the “Receivables Facility”), which allowed the Company to receive financing secured by its retail installment contract receivables from transactions under a customer-owned model.
In April 2020, the Company further amended the Receivables Facility to also permit financing secured by retail installment contract receivables from transactions occurring under a Company-owned model, and as a result, the Company began transitioning to a predominately Company-owned model in May 2020.
Substantially all new residential transactions since March 2021 take place under a Company-owned model.
Refer to Note 6 “Debt” for further discussion regarding the Receivables Facility.
Receivables and Contract Assets
The Company’s accounts receivable, retail installment contract receivables, and contract assets 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.
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 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.
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Changes in the allowance for credit losses on accounts receivable were as follows:
Nine Months Ended September 30,
(in thousands)2021
2020(1)
Beginning balance$68,342 $42,960 
Provision for credit losses40,105 63,231 
Write-offs, net of recoveries (2)
(48,337)(41,713)
Ending balance$60,110 $64,478 
________________
(1)Beginning balance reflected is subsequent to the adoption of ASU 2016-13, Measurement of Credit Losses on Financial Instruments, and related amendments on January 1, 2020. The impact of adoption was not material.
(2)Recoveries were not material for the periods presented, as such, the Company presented write-offs, net of recoveries.
Retail Installment Contract Receivables, net
The Company’s retail installment contract option allows qualifying residential customers to pay the fees due at installation over a 24-, 36-, or 60-month interest-free period and is available for transactions occurring under both Company-owned and customer-owned models. The financing component of retail installment contract receivables is not significant.
Upon origination of a retail installment contract, the Company utilizes external credit scores to assess customer credit quality and determine eligibility. Subsequent to origination, the Company monitors the delinquency status of retail installment contract receivables as the key credit quality indicator. In addition, customers are required to enroll in the Company’s automated payment process in order to enter into a retail installment contract. As of September 30, 2021, the current and delinquent billed retail installment contract receivables were not material.
Unbilled retail installment contract receivables reflected in the Condensed Consolidated Balance Sheets were as follows:
(in thousands)September 30, 2021December 31, 2020
Retail installment contract receivables, gross$282,360 $145,957 
Allowance for credit losses(1,530)(4,366)
Retail installment contract receivables, net$280,830 $141,591 
Classification:
Accounts receivable, net$84,665 $47,023 
Other assets196,165 94,568 
Retail installment contract receivables, net$280,830 $141,591 
As of September 30, 2021 and December 31, 2020, retail installment contract receivables, net, used as collateral for borrowings under the Receivables Facility were $249 million and $109 million, respectively. The allowance for credit losses relates to retail installment contract receivables from outright sales transactions and is not material.
Contract Assets, net
Contract assets represent the Company’s right to consideration in exchange for goods or services transferred to the customer. The contract asset is reclassified to accounts receivable when the Company has an unconditional right to the consideration as additional services are performed and billed. The Company has the right to bill customers as services are provided over time, which generally occurs over the course of a 24-, 36-, or 60-month period. The financing component of contract assets is not significant.
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