Company Quick10K Filing
ADT
Price6.16 EPS-1
Shares750 P/E-9
MCap4,620 P/FCF3
Net Debt9,690 EBIT-538
TEV14,311 TEV/EBIT-27
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-09-30 Filed 2020-11-05
10-Q 2020-06-30 Filed 2020-08-05
10-Q 2020-03-31 Filed 2020-05-07
10-K 2019-12-31 Filed 2020-03-10
10-Q 2019-09-30 Filed 2019-11-12
10-Q 2019-06-30 Filed 2019-08-06
10-Q 2019-03-31 Filed 2019-05-07
10-K 2018-12-31 Filed 2019-03-11
10-Q 2018-09-30 Filed 2018-11-08
10-Q 2018-06-30 Filed 2018-08-09
10-Q 2018-03-31 Filed 2018-05-09
10-K 2017-12-31 Filed 2018-03-15
8-K 2020-11-05 Earnings, Regulation FD, Exhibits
8-K 2020-09-17 Enter Agreement, Sale of Shares, Shareholder Rights, Amend Bylaw, Other Events, Exhibits
8-K 2020-09-16 Enter Agreement, Exhibits
8-K 2020-08-21 Officers
8-K 2020-08-20 Enter Agreement, Off-BS Arrangement, Regulation FD, Exhibits
8-K 2020-08-06 Regulation FD, Other Events, Exhibits
8-K 2020-08-06 Other Events, Exhibits
8-K 2020-08-05 Earnings, Regulation FD, Exhibits
8-K 2020-07-31 Enter Agreement, Earnings, Sale of Shares, Shareholder Vote, Regulation FD, Other Events, Exhibits
8-K 2020-07-22 Amend Bylaw, Code of Ethics, Exhibits
8-K 2020-05-29
8-K 2020-05-07
8-K 2020-04-09
8-K 2020-03-23
8-K 2020-03-13
8-K 2020-03-05
8-K 2020-01-28
8-K 2020-01-16
8-K 2020-01-16
8-K 2020-01-07
8-K 2019-11-12
8-K 2019-11-06
8-K 2019-11-05
8-K 2019-10-23
8-K 2019-10-11
8-K 2019-09-30
8-K 2019-09-23
8-K 2019-09-13
8-K 2019-09-12
8-K 2019-09-05
8-K 2019-09-04
8-K 2019-09-03
8-K 2019-08-06
8-K 2019-06-13
8-K 2019-06-03
8-K 2019-05-07
8-K 2019-04-11
8-K 2019-04-04
8-K 2019-04-01
8-K 2019-03-22
8-K 2019-03-21
8-K 2019-03-15
8-K 2019-03-12
8-K 2019-03-12
8-K 2019-03-11
8-K 2019-03-11
8-K 2019-02-15
8-K 2019-02-05
8-K 2019-02-01
8-K 2019-01-02
8-K 2018-12-03
8-K 2018-11-13
8-K 2018-11-09
8-K 2018-11-07
8-K 2018-10-24
8-K 2018-09-21
8-K 2018-09-12
8-K 2018-09-04
8-K 2018-08-08
8-K 2018-07-30
8-K 2018-07-25
8-K 2018-07-02
8-K 2018-05-09
8-K 2018-03-16
8-K 2018-03-15
8-K 2018-03-06
8-K 2018-02-21

ADT 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II. Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits.
EX-10.23 receivablespurchaseagree.htm
EX-31.1 adtincq3202010-qex31x1.htm
EX-31.2 adtincq3202010-qex31x2.htm
EX-32.1 adtincq3202010-qex32x1.htm
EX-32.2 adtincq3202010-qex32x2.htm

ADT Earnings 2020-09-30

Balance SheetIncome StatementCash Flow
2016128402016201720182020
Assets, Equity
1.41.10.70.40.0-0.32016201720182020
Rev, G Profit, Net Income
0.80.50.1-0.2-0.6-0.92016201720182020
Ops, Inv, Fin

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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, 2020
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-20200930_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 and post 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 filer Accelerated 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 29, 2020, there were 761,101,931 shares outstanding (excluding 9,611,770 of unvested shares) 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, 2020December 31, 2019
Assets
Current assets:
Cash and cash equivalents$489,433 $48,736 
Accounts receivable, net of allowance for credit losses of $64,478 and $44,337, respectively
289,680 287,243 
Inventories, net155,159 104,219 
Work-in-progress45,238 34,183 
Prepaid expenses and other current assets200,401 151,102 
Total current assets1,179,911 625,483 
Property and equipment, net324,201 328,731 
Subscriber system assets, net2,649,718 2,739,296 
Intangible assets, net6,046,728 6,669,645 
Goodwill5,217,275 4,959,658 
Deferred subscriber acquisition costs, net611,334 513,320 
Other assets336,900 247,519 
Total assets$16,366,067 $16,083,652 
Liabilities and stockholders' equity
Current liabilities:
Current maturities of long-term debt$69,035 $58,049 
Accounts payable273,100 241,954 
Deferred revenue341,146 342,359 
Accrued expenses and other current liabilities566,167 477,366 
Total current liabilities1,249,448 1,119,728 
Long-term debt9,675,430 9,634,226 
Deferred subscriber acquisition revenue768,356 673,625 
Deferred tax liabilities1,002,916 1,166,269 
Other liabilities531,441 305,435 
Total liabilities13,227,591 12,899,283 
Commitments and contingencies (See Note 12)
Stockholders' equity:
Preferred stock—authorized 1,000,000 and 250,000 shares of $0.01 par value as of September 30, 2020 and December 31, 2019, respectively; zero issued and outstanding.
  
Common stock—authorized 3,999,000,000 shares of $0.01 par value; issued and outstanding shares of 770,723,162 and 753,622,044 as of September 30, 2020 and December 31, 2019, respectively
7,707 7,536 
Class B common stock—authorized 100,000,000 and zero shares of $0.01 par value as of September 30, 2020 and December 31, 2019, respectively; issued and outstanding shares of 54,744,525 and zero as of September 30, 2020 and December 31, 2019, respectively.
547  
Additional paid-in capital6,613,866 5,977,402 
Accumulated deficit(3,349,356)(2,742,193)
Accumulated other comprehensive loss(134,288)(58,376)
Total stockholders' equity3,138,476 3,184,369 
Total liabilities and stockholders' equity$16,366,067 $16,083,652 
See Notes to Condensed Consolidated Financial Statements
1



ADT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
For the Three Months EndedFor the Nine Months Ended
September 30, 2020September 30, 2019September 30, 2020September 30, 2019
Monitoring and related services$1,045,677 $1,093,564 $3,133,013 $3,249,401 
Installation and other253,247 207,006 867,050 577,973 
Total revenue1,298,924 1,300,570 4,000,063 3,827,374 
Cost of revenue (exclusive of depreciation and amortization shown separately below)357,895 356,556 1,142,228 1,020,603 
Selling, general and administrative expenses410,933 378,645 1,278,191 1,047,818 
Depreciation and intangible asset amortization473,346 505,832 1,440,239 1,502,574 
Merger, restructuring, integration, and other(6,117)9,800 114,715 23,069 
Goodwill impairment 45,482  45,482 
Loss on sale of business(19)55,489 738 55,489 
Operating income (loss) 62,886 (51,234)23,952 132,339 
Interest expense, net(156,759)(152,431)(569,391)(465,977)
Loss on extinguishment of debt(48,916)(14,532)(114,759)(103,004)
Other income1,992 200 6,572 2,909 
Loss before income taxes(140,797)(217,997)(653,626)(433,733)
Income tax benefit27,699 36,367 133,494 81,576 
Net loss$(113,098)$(181,630)$(520,132)$(352,157)
Net (loss) income per share - basic:
Common stock$(0.15)$(0.25)$(0.68)$(0.47)
Class B common stock$0.05 $ $(0.10)$ 
Weighted-average shares outstanding - basic:
Common stock760,913 739,852 760,203 748,500 
Class B common stock8,331  2,797  
Net loss per share - diluted:
Common stock$(0.15)$(0.25)$(0.68)$(0.47)
Class B common stock$(0.07)$ $(0.44)$ 
Weighted-average shares outstanding - diluted:
Common stock760,913 739,852 760,203 748,500 
Class B common stock16,640  5,587  
See Notes to Condensed Consolidated Financial Statements
2



ADT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
(in thousands)
For the Three Months EndedFor the Nine Months Ended
September 30, 2020September 30, 2019September 30, 2020September 30, 2019
Net loss$(113,098)$(181,630)$(520,132)$(352,157)
Other comprehensive income (loss), net of tax:
Cash flow hedges11,607 (5,876)(75,891)(56,075)
Foreign currency translation (6,340) 13,711 
Defined benefit pension plans(16)(17)(21)(29)
Total other comprehensive income (loss), net of tax 11,591 (12,233)(75,912)(42,393)
Comprehensive loss$(101,507)$(193,863)$(596,044)$(394,550)
See Notes to Condensed Consolidated Financial Statements
3



ADT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(in thousands)
For the Three Months Ended September 30, 2020For the Three Months Ended September 30, 2019
Number of Common SharesNumber of Class B Common SharesCommon StockClass B Common StockAdditional
Paid-In
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
Total
Stockholders'
Equity
Number of Common SharesCommon StockAdditional
Paid-In
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
Total
Stockholders'
Equity
Balances at beginning of period770,429  $7,704 $ $6,139,135 $(3,206,845)$(145,879)$2,794,115 746,360 $7,464 $5,888,576 $(1,904,242)$(101,939)$3,889,859 
Net loss— — — — — (113,098)— (113,098)— — — (181,630)— (181,630)
Other
    comprehensive
    income (loss),
    net of tax
— — — — — — 11,591 11,591 — — — — (12,233)(12,233)
Issuance of
    common
    stock, net of
    related fees
 54,745  547 447,088 — — 447,635    — —  
Dividends,
    including
    dividends
    reinvested
    in common
    stock
1    4 (28,963)— (28,959)3,740 37 22,526 (26,253)— (3,690)
Share-based
    compensation
    expense
  — — 26,431 — — 26,431  — 18,876 — — 18,876 
Other293  3  1,208 (450)— 761 (68)(1)196 (193)— 2 
Balances at end of period770,723 54,745 $7,707 $547 $6,613,866 $(3,349,356)$(134,288)$3,138,476 750,032 $7,500 $5,930,174 $(2,112,318)$(114,172)$3,711,184 
See Notes to Condensed Consolidated Financial Statements









4



ADT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(in thousands)
For the Nine Months Ended September 30, 2020For the Nine Months Ended September 30, 2019
Number of Common SharesNumber of Class B Common SharesCommon StockClass B Common StockAdditional
Paid-In
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
Total
Stockholders'
Equity
Number of Common SharesCommon StockAdditional
Paid-In
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
Total
Stockholders'
Equity
Balances at beginning of period753,622  $7,536 $ $5,977,402 $(2,742,193)$(58,376)$3,184,369 766,881 $7,669 $5,969,347 $(1,680,432)$(71,779)$4,224,805 
Adoption of
    accounting
    standard,
 net of tax
— — — — — (2,157)— (2,157)— — —  —  
Net loss— — — — — (520,132)— (520,132)— — — (352,157)— (352,157)
Other
    comprehensive
    loss, net of
    tax
— — — — — — (75,912)(75,912)— — — — (42,393)(42,393)
Issuance of
    common stock,
    net of related
    fees
16,279 54,745 163 547 560,766 — — 561,476    — —  
Repurchases
    of common
    stock
(1)   (4) — (4)(23,883)(239)(149,629) — (149,868)
Dividends,
    including
    dividends
    reinvested
    in common
    stock
2    11 (82,847)— (82,836)7,147 71 44,933 (79,346)— (34,342)
Share-based
    compensation
    expense
  — — 74,758 — — 74,758  — 65,126 — — 65,126 
Other821  8  933 (2,027)(1,086)(113)(1)397 (383)— 13 
Balances at end of period770,723 54,745 $7,707 $547 $6,613,866 $(3,349,356)$(134,288)$3,138,476 750,032 $7,500 $5,930,174 $(2,112,318)$(114,172)$3,711,184 
See Notes to Condensed Consolidated Financial Statements
5



ADT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
For the Nine Months Ended
September 30, 2020September 30, 2019
Cash flows from operating activities:
Net loss$(520,132)$(352,157)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and intangible asset amortization1,440,239 1,502,574 
Amortization of deferred subscriber acquisition costs70,226 58,544 
Amortization of deferred subscriber acquisition revenue(90,346)(78,506)
Share-based compensation expense74,758 65,126 
Deferred income taxes(147,007)(86,339)
Provision for losses on receivables and inventory99,019 42,248 
Loss on extinguishment of debt114,759 103,004 
Goodwill impairment 45,482 
Loss on sale of business738 55,489 
Unrealized loss on interest rate swap contracts89,589 9,380 
Other non-cash items, net102,950 94,504 
Changes in operating assets and liabilities, net of the effects of acquisitions and dispositions:
Deferred subscriber acquisition costs(170,247)(147,865)
Deferred subscriber acquisition revenue124,621 201,869 
Other, net(195,898)(54,104)
Net cash provided by operating activities993,269 1,459,249 
Cash flows from investing activities:
Dealer generated customer accounts and bulk account purchases(265,131)(514,487)
Subscriber system asset expenditures(272,512)(430,586)
Purchases of property and equipment(112,317)(120,140)
Acquisition of businesses, net of cash acquired(182,154)(95,312)
Sale of business, net of cash sold(2,448) 
Other investing, net34,287 3,604 
Net cash used in investing activities(800,275)(1,156,921)
Cash flows from financing activities:
Proceeds from issuance of common stock450,000  
Proceeds from long-term borrowings2,640,000 3,378,022 
Proceeds from receivables facility43,748  
Repayment of long-term borrowings, including call premiums(2,748,095)(3,650,082)
Repayment of receivables facility(2,456) 
Dividends on common stock(80,298)(33,855)
Repurchases of common stock(4)(149,868)
Deferred financing costs(27,962)(52,733)
Other financing, net(25,777)(1,200)
Net cash provided by (used in) financing activities249,156 (509,716)
Effect of currency translation on cash 821 
Net increase (decrease) in cash and cash equivalents and restricted cash and cash equivalents 442,150 (206,567)
Cash and cash equivalents and restricted cash and cash equivalents at beginning of period48,736 367,162 
Cash and cash equivalents and restricted cash and cash equivalents at end of period$490,886 $160,595 
Supplemental schedule of non-cash investing and financing activities:
Issuance of shares in lieu of cash dividend$11 $45,004 
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 consumer and business customers 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 began trading on the New York Stock Exchange under the symbol “ADT.”
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 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.
COVID-19 Pandemic
During March 2020, the World Health Organization declared the outbreak of a novel coronavirus as a pandemic (the “COVID-19 Pandemic”), which has become increasingly widespread in the U.S. Containment efforts and responses to the COVID-19 Pandemic have varied by individuals, businesses, and state and local municipalities, and in certain areas of the U.S., initial and precautionary measures helped mitigate the spread of the coronavirus. However, subsequent easing of such measures resulted in the re-emergence of the coronavirus. The COVID-19 Pandemic has had a notable adverse impact on general economic conditions, including but not limited to the temporary closures of many businesses, increased governmental regulations, and reduced consumer spending due to significant unemployment and other effects attributable to the COVID-19 Pandemic. In order to continue to service customers, the Company has adjusted and is continuously evolving certain aspects of its operations to protect employees and customers, which includes (i) detailed protocols for infectious disease safety for employees, (ii) the implementation of daily wellness checks for employees, and (iii) the implementation of work from home actions, including the majority of the Company’s call center professionals.
The Company considered the emergence and pervasive economic impact of the COVID-19 Pandemic in its 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, 2020. Additional information on the impacted estimates is included in the respective footnotes that follow. Due to the evolving and uncertain nature of the COVID-19 Pandemic, it is possible that the effects of the COVID-19 Pandemic could materially impact the Company’s estimates and condensed consolidated financial statements in future reporting periods.
Basis of Presentation and Consolidation
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, 2019 (the “2019 Annual
7


Report”), which was filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 10, 2020. The Company’s accounting policies used in the preparation of these condensed consolidated financial statements do not differ from those used for the annual consolidated financial statements, unless otherwise noted.
The Condensed Consolidated Balance Sheet as of December 31, 2019 included herein was derived from the audited consolidated financial statements as of that date but does not include all the footnote disclosures from 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.
The Company has a single operating and reportable segment based on the manner in which the Chief Executive Officer, who is the chief operating decision maker, evaluates performance and makes decisions about how to allocate resources.
Cash and Cash Equivalents and Restricted Cash and 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 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 cash equivalents are reflected in prepaid expenses and other current assets in the Condensed Consolidated Balance Sheets.
The following table provides a reconciliation of the amount of cash and cash equivalents and restricted cash and cash equivalents reported in the Condensed Consolidated Balance Sheets to the total of the same of such amounts shown in the Condensed Consolidated Statements of Cash Flows:
(in thousands)September 30, 2020December 31, 2019
Cash and cash equivalents$489,433 $48,736 
Restricted cash and cash equivalents in prepaid expenses and other current assets1,453  
Cash and cash equivalents and restricted cash and cash equivalents at end of period$490,886 $48,736 
Subscriber System Assets, net and Deferred Subscriber Acquisition Costs, net
The Company capitalizes certain costs associated with transactions in which the Company retains ownership of the security system as well as incremental selling expenses related to acquiring customers. These costs include equipment, installation costs, and other incremental costs and are recorded in subscriber system assets, net, and deferred subscriber acquisition costs, net, in the Condensed Consolidated Balance Sheets. These assets embody a probable future economic benefit as they contribute to the generation of future monitoring and related services revenue for the Company.
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 customer termination, the Company may retrieve such assets. Depreciation expense relating to subscriber system assets is included in depreciation and intangible asset amortization in the Condensed Consolidated Statements of Operations and was $120 million and $142 million for the three months ended September 30, 2020 and 2019, respectively, and $380 million and $423 million for the nine months ended September 30, 2020 and 2019, respectively.
The gross carrying amount, accumulated depreciation, and net carrying amount of subscriber system assets as of September 30, 2020 and December 31, 2019 were as follows:
(in thousands)September 30, 2020December 31, 2019
Gross carrying amount$4,683,816 $4,597,908 
Accumulated depreciation(2,034,098)(1,858,612)
Subscriber system assets, net$2,649,718 $2,739,296 
8


Deferred subscriber acquisition costs represent incremental selling expenses (primarily commissions) related to acquiring customers. Amortization expense relating to deferred subscriber acquisition costs included in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations was $25 million and $21 million for the three months ended September 30, 2020 and 2019, respectively, and $70 million and $59 million for the nine months ended September 30, 2020 and 2019, respectively.
Subscriber system assets and any related deferred subscriber acquisition costs resulting from customer acquisitions are accounted for on a pooled basis based on the month and year of acquisition. The Company depreciates and amortizes its pooled subscriber system assets and related deferred subscriber acquisition costs using an accelerated method over the estimated life of the customer relationship, which is 15 years.
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following as of September 30, 2020 and December 31, 2019:
(in thousands)September 30, 2020December 31, 2019
Accrued interest$66,992 $115,070 
Payroll-related accruals139,845 91,944 
Other accrued liabilities359,330 270,352 
Accrued expenses and other current liabilities$566,167 $477,366 
Radio Conversion Costs
In 2019, the providers of 3G and Code-Division Multiple Access (“CDMA”) cellular networks notified the Company that they will be retiring their 3G and CDMA networks during 2022. Accordingly, during 2019 the Company commenced a program to replace the 3G and CDMA cellular equipment used in many of its security systems. The Company estimates the range of net costs for this replacement program at $200 million to $325 million through 2022. The Company expects to incur approximately $50 million to $75 million of net costs during 2020. These ranges are net of any revenue the Company collects from customers associated with these radio replacements and cellular network conversions. The Company seeks to minimize these costs by converting customers during routine service visits whenever possible. The replacement program and pace of replacement are subject to change and may be influenced by the Company’s ability to access customer sites due to the COVID-19 Pandemic, cost-sharing opportunities with suppliers, carriers, and customers, as well as new and innovative technologies.
Radio conversion revenue associated with the replacement program is included in monitoring and related services revenue in the Condensed Consolidated Statement of Operations while radio conversion costs are included in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations. During the three months ended September 30, 2020 and 2019, the Company incurred $21 million and $12 million of radio conversion costs, respectively, and recognized $8 million and $1 million of incremental radio conversion revenue, respectively. During the nine months ended September 30, 2020 and 2019, the Company incurred $50 million and $14 million of radio conversion costs, respectively, and recognized $26 million and $1 million of incremental radio conversion revenue, respectively.
Fair Value of Financial Instruments
The Company’s financial instruments primarily consist of cash and cash equivalents, restricted cash and 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, which were $264 million as of September 30, 2020. The Company had no cash equivalents as of December 31, 2019. These investments are classified as a Level 1 fair value measurement, which represent unadjusted quoted prices in active markets for identical assets or liabilities.
Retail Installment Contract Receivables - 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.
9


The following table presents the carrying amount and fair value of retail installment contract receivables as of the periods presented below:
September 30, 2020
January 1, 2020(1)
(in thousands)Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Retail installment contract receivables, net$108,397 $89,447 $9,743 $8,946 
________________
(1)Balances reflected are subsequent to the adoption of CECL (as defined below) on January 1, 2020.
Long-Term Debt Instruments - The fair value of the Company’s debt instruments was determined using broker-quoted market prices, which represent prices based on quoted prices for similar assets or liabilities as well as other observable market data. The carrying amount of debt outstanding, if any, under the Company’s revolving credit facility and receivables facility approximate fair value as interest rates on these borrowings approximate current market rates. The resulting fair value is classified as a Level 2 fair value measurement.
The following table presents the carrying amount and fair value of long-term debt instruments as of the periods presented below:
September 30, 2020December 31, 2019
(in thousands)Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Debt instruments, excluding finance lease obligations$9,681,595 $10,137,127 $9,617,491 $10,177,751 
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 that utilize 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 value is classified as a Level 2 fair value measurement.
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 $83 million and $47 million as of September 30, 2020 and December 31, 2019, 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”) 2016-13, Measurement of Credit Losses on Financial Instrument, and related amendments, introduces new guidance which makes substantive changes to the accounting for credit losses. This guidance introduces the current expected credit losses (“CECL”) model which applies to financial assets subject to credit losses and measured at amortized cost, as well as certain off-balance sheet credit exposures. The CECL model requires an entity to estimate credit losses expected over the life of an exposure, considering information about historical events, current conditions, and reasonable and supportable forecasts and is generally expected to result in earlier recognition of credit losses. The Company adopted this guidance as of January 1, 2020 using the modified retrospective approach and recognized a cumulative effect adjustment to the opening balance of accumulated deficit with no restatement of comparative periods. The impact of adoption was not material.
ASU 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, aligns the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is classified as a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The Company adopted the guidance as of January 1, 2020 on a prospective basis, which will result in capitalized implementation costs being classified in the same line item as the fees associated with the cloud computing service agreement in the Condensed Consolidated Balance Sheets, Statements of Operations, and Cash Flows. The impact of adoption was not material.
ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting, provides optional guidance for a limited period of time to ease the potential burden of accounting for reference rate reform. The guidance was effective for the Company beginning on March 12, 2020 and it will apply the amendments prospectively through December 31, 2022. The impact of adoption was not material.
10


Recently Issued Accounting Pronouncements
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. This guidance is effective for fiscal years beginning after December 15, 2021, 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 intends to early adopt this guidance in the first quarter of 2021 and the impact of adoption is not anticipated to be material.
2. Revenue and Receivables
The Company generates revenue primarily through contractual monthly recurring fees received for monitoring and related services provided to customers. In transactions in which the Company provides monitoring and related services but retains ownership of the security system, the Company’s performance obligations primarily include monitoring, related services (such as maintenance agreements), and a material right associated with the non-refundable fees received in connection with the initiation of a monitoring contract (referred to as deferred subscriber acquisition revenue) that the customer will not need to pay upon a renewal of the contract. The portion of the transaction price associated with monitoring and related services revenue 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.
Deferred subscriber acquisition revenue is deferred and recorded as deferred subscriber acquisition revenue in the Condensed Consolidated Balance Sheets upon initiation of a monitoring contract. Deferred subscriber acquisition revenue is amortized on a pooled basis into installation and other revenue in the Condensed Consolidated Statements of Operations over the estimated life of the customer relationship using an accelerated method consistent with the amortization of subscriber system assets and deferred subscriber acquisition costs associated with the transaction. Amortization of deferred subscriber acquisition revenue was $31 million and $28 million for the three months ended September 30, 2020 and 2019, respectively, and $90 million and $79 million for the nine months ended September 30, 2020 and 2019, respectively.
In transactions involving a security system that is sold outright to the customer, the Company’s performance obligations generally include monitoring, related services, and the sale and installation of the security system. For such arrangements, the Company allocates a portion of the transaction price to each performance obligation based on relative standalone selling price, which is determined using observable internal or external pricing and profitability metrics. Revenue associated with the sale and installation of a security 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. Revenue associated with monitoring and related services is recognized as those services are provided and is reflected in monitoring and related services revenue in the Condensed Consolidated Statements of Operations.
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.
The following table sets forth the Company’s revenue disaggregated by source:
For the Three Months EndedFor the Nine Months Ended
(in thousands)September 30, 2020September 30, 2019September 30, 2020September 30, 2019
Monitoring and related services$1,045,677 $1,093,564 $3,133,013 $3,249,401 
Installation and other253,247 207,006 867,050 577,973 
Total revenue$1,298,924 $1,300,570 $4,000,063 $3,827,374 
Equipment Ownership Model Change
During February 2020, the Company launched a new revenue model initiative for certain residential customers which revised the amount and nature of fees due at installation, introduced a 60 month monitoring contract option, and introduced a new retail installment contract which allows qualifying residential customers to repay the fees due at installation over the course of a 24, 36, or 60 month interest-free period. Due to the requirements of the Company’s initial third-party consumer financing program, the Company also transitioned its security system ownership model from a predominately Company-owned model to a predominately customer-owned model (the “Equipment Ownership Model Change”).
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During March 2020, the Company entered into an uncommitted receivables securitization financing agreement (the “Receivables Facility”). Under the terms of the Receivables Facility, the Company may receive up to $200 million of financing secured by retail installment contract receivables from transactions involving security systems that were sold under a customer-owned model. During April 2020, the Company amended the Receivables Facility to also permit financing secured by retail installment contract receivables from transactions occurring under the Company-owned model. During May 2020, the Company started to transition its security system ownership model back to a predominately Company-owned model as a result of this amendment.
Accounts Receivable
Accounts receivable represent unconditional rights to consideration due from customers in the ordinary course of business and are generally due in one year or less. Accounts receivable are recorded at amortized cost less an allowance for credit losses that are not expected to be recovered. The allowance for credit losses is recognized at inception and is reassessed each reporting period.
The Company’s allowance for credit losses is evaluated on a pooled basis based on customer type. For each pool of customers, 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 was not material for the individual pools of customers for the periods presented.
The changes in the allowance for credit losses during the nine months ended September 30, 2020 were as follows:
(in thousands)
Balance as of January 1, 2020(1)
$42,960 
Provision for credit losses63,231 
Write-offs, net of recoveries(2)
(41,713)
Balance as of September 30, 2020$64,478 
________________
(1)Balance reflected is subsequent to the adoption of CECL on January 1, 2020.
(2)The amount of recoveries was not material for the period presented, as such, the Company presented write-offs, net of recoveries.
Retail Installment Contract Receivables
During February 2020, the Company launched a new retail installment contract which allows qualifying residential customers to repay the fees due at installation over a 24, 36, or 60 month interest-free period. The financing component of a retail installment contract receivable is not significant.
Retail installment contracts are available for residential transactions occurring under either a Company-owned model or a customer-owned model. When originating a retail installment contract, the Company utilizes external credit scores to assess credit quality of a customer and to determine eligibility for the retail installment contract. In addition, a customer is required to enroll in the Company’s automated payment process in order to enter into a retail installment contract. Subsequent to origination, the Company monitors the delinquency status of retail installment contract receivables as the key credit quality indicator. As of September 30, 2020, the amount of current and delinquent billed retail installment contract receivables were not material.
Retail installment contract receivables are recorded at amortized cost less an allowance for credit losses that are not expected to be recovered. The allowance for credit losses is recognized at inception and is reassessed each reporting period. The allowance for credit losses on retail installment contract receivables was not material for the periods presented.
The following is a summary of unbilled retail installment contract receivables, net, recognized in the Condensed Consolidated Balance Sheets as of the periods presented below:
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(in thousands)September 30, 2020
January 1, 2020(1)
Retail installment contract receivables, gross$114,610