10-Q 1 adt-20240331.htm 10-Q adt-20240331
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Canopy Investment
In April 2022, the Company and Ford Motor Company (“Ford”) formed the entity, SNTNL LLC (“Canopy”). Canopy meets the definition of a variable interest entity (“VIE”) because the Company holds a variable interest through its 40% investment in Canopy’s preferred class of equity (the “Canopy Investment”) and fees received under various commercial agreements between the Company and Canopy. The Company is not the primary beneficiary, and therefore, does not consolidate Canopy’s assets, liabilities, and financial results of operations. As a result, the Company accounts for its investment in Canopy under the equity method of accounting.
The impact to the Company’s condensed consolidated financial statements as a result of the Canopy Investment or the commercial agreements was not material during the periods presented.
As of March 31, 2024 and December 31, 2023, the Canopy Investment’s carrying amount was approximately $12 million and $7 million, respectively, and is presented in other assets. The balance primarily reflects the initial contribution, plus an additional investment of approximately $5 million during the first quarter of 2023, as well as the Company’s proportionate share of Canopy’s cumulative net earnings or losses.
Subsequent event 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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 March 31, 2024
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
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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, 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 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 April 17, 2024, there were 855,629,403 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)
March 31, 2024December 31, 2023
Assets
Current assets:
Cash and cash equivalents$4,041 $14,621 
Restricted cash and restricted cash equivalents114,655 115,329 
Accounts receivable, net of allowance for credit losses of $66,927 and $53,229, respectively
387,498 390,471 
Inventories, net209,765 230,108 
Prepaid expenses and other current assets285,035 254,165 
Total current assets1,000,994 1,004,694 
Property and equipment, net261,275 283,170 
Subscriber system assets, net3,011,419 3,005,936 
Intangible assets, net4,843,986 4,877,493 
Goodwill4,903,899 4,903,899 
Deferred subscriber acquisition costs, net1,210,302 1,175,904 
Other assets712,308 712,998 
Total assets$15,944,183 $15,964,094 
Liabilities and stockholders' equity
Current liabilities:
Current maturities of long-term debt$322,070 $320,612 
Accounts payable260,137 293,883 
Deferred revenue252,080 264,398 
Accrued expenses and other current liabilities574,779 601,315 
Total current liabilities1,409,066 1,480,208 
Long-term debt7,566,878 7,523,349 
Deferred subscriber acquisition revenue1,975,886 1,914,954 
Deferred tax liabilities1,039,113 1,027,189 
Other liabilities217,459 229,748 
Total liabilities12,208,402 12,175,448 
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 March 31, 2024 and December 31, 2023
— — 
Common stock—authorized 3,999,000,000 shares of $0.01 par value; issued and outstanding shares of 855,629,403 and 867,432,337 as of March 31, 2024 and December 31, 2023, respectively
8,556 8,674 
Class B common stock—authorized 100,000,000 shares of $0.01 par value; issued and outstanding shares of 54,744,525 as of March 31, 2024 and December 31, 2023
547 547 
Additional paid-in capital7,317,895 7,413,305 
Accumulated deficit(3,576,763)(3,617,718)
Accumulated other comprehensive income (loss)(14,454)(16,162)
Total stockholders' equity3,735,781 3,788,646 
Total liabilities and stockholders' equity$15,944,183 $15,964,094 
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 March 31,
20242023
Revenue:
Monitoring and related services$1,062,652 $1,028,634 
Security installation, product, and other127,020 103,842 
Solar installation, product, and other19,639 144,835 
Total revenue1,209,311 1,277,311 
Cost of revenue (exclusive of depreciation and amortization shown separately below):
Monitoring and related services154,713 161,788 
Security installation, product, and other39,592 29,836 
Solar installation, product, and other41,522 98,344 
Total cost of revenue235,827 289,968 
Selling, general, and administrative expenses398,453 393,374 
Depreciation and intangible asset amortization334,353 362,351 
Merger, restructuring, integration, and other45,182 15,537 
Goodwill impairment— 241,630 
Operating income (loss)195,496 (25,549)
Interest expense, net(88,931)(171,302)
Other income (expense)15,622 (1,190)
Income (loss) from continuing operations before income taxes and equity in net earnings (losses) of equity method investee122,187 (198,041)
Income tax benefit (expense)(30,655)73,937 
Income (loss) from continuing operations before equity in net earnings (losses) of equity method investee91,532 (124,104)
Equity in net earnings (losses) of equity method investee— (2,677)
Income (loss) from continuing operations91,532 (126,781)
Income (loss) from discontinued operations, net of tax
19 7,944 
Net income (loss)$91,551 $(118,837)
Common Stock:
Income (loss) from continuing operations per share - basic
$0.10 $(0.14)
Income (loss) from continuing operations per share - diluted
$0.10 $(0.14)
Net income (loss) per share - basic
$0.10 $(0.13)
Net income (loss) per share - diluted
$0.10 $(0.13)
Weighted-average shares outstanding - basic
855,893 854,299 
Weighted-average shares outstanding - diluted
918,394 854,299 
Class B Common Stock:
Income (loss) from continuing operations per share - basic
$0.10 $(0.14)
Income (loss) from continuing operations per share - diluted
$0.10 $(0.14)
Net income (loss) per share - basic
$0.10 $(0.13)
Net income (loss) per share - diluted
$0.10 $(0.13)
Weighted-average shares outstanding - basic
54,745 54,745 
Weighted-average shares outstanding - diluted
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 March 31,
20242023
Net income (loss)$91,551 $(118,837)
Other comprehensive income (loss), net of tax:
Cash flow hedges1,617 4,135 
Other91 (28)
Total other comprehensive income (loss), net of tax 1,708 4,107 
Comprehensive income (loss)$93,259 $(114,730)
See Notes to Condensed Consolidated Financial Statements
3


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

Three Months Ended March 31, 2024
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 balance867,432 54,745 $8,674 $547 $7,413,305 $(3,617,718)$(16,162)$3,788,646 
Net income (loss)— — — — — 91,551 — 91,551 
Other comprehensive income (loss), net of tax— — — — — — 1,708 1,708 
Dividends— — — — — (50,070)— (50,070)
Share-based compensation expense— — — — 7,971 — — 7,971 
Repurchases of common stock (including excise tax)(15,000)— (150)— (93,969)— — (94,119)
Transactions related to employee share-based
compensation plans and other
3,197 — 32 — (9,412)(526)— (9,906)
Ending balance855,629 54,745 $8,556 $547 $7,317,895 $(3,576,763)$(14,454)$3,735,781 

Three Months Ended March 31, 2023
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 balance862,098 54,745 $8,621 $547 $7,380,759 $(3,949,579)$(47,200)$3,393,148 
Net income (loss)— — — — — (118,837)— (118,837)
Other comprehensive income (loss), net of tax— — — — — — 4,107 4,107 
Dividends— — — — — (32,258)— (32,258)
Share-based compensation expense— — — — 15,982 — — 15,982 
Transactions related to employee share-based
compensation plans and other
4,819 — 47 — (15,874)(883)— (16,710)
Ending balance866,917 54,745 $8,668 $547 $7,380,867 $(4,101,557)$(43,093)$3,245,432 
See Notes to Condensed Consolidated Financial Statements
4


ADT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended March 31,
20242023
Cash flows from operating activities:
Net income (loss)$91,551 $(118,837)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and intangible asset amortization334,353 383,055 
Amortization of deferred subscriber acquisition costs54,605 46,684 
Amortization of deferred subscriber acquisition revenue(83,376)(72,022)
Share-based compensation expense7,971 15,982 
Deferred income taxes11,414 (69,740)
Provision for losses on receivables and inventory60,765 26,479 
Goodwill, intangible, and other asset impairments20,446 242,630 
Unrealized (gain) loss on interest rate swap contracts(10,146)32,516 
Other non-cash items, net20,845 28,601 
Changes in operating assets and liabilities, net of effects of acquisitions and dispositions:
Deferred subscriber acquisition costs(89,086)(87,161)
Deferred subscriber acquisition revenue65,918 73,529 
Other, net(121,458)(195,076)
Net cash provided by (used in) operating activities363,802 306,640 
Cash flows from investing activities:
Dealer generated customer accounts and bulk account purchases(117,594)(115,818)
Subscriber system asset expenditures(140,515)(159,433)
Purchases of property and equipment(40,689)(59,215)
Proceeds (payments) from interest rate swaps
(1,816)— 
Other investing, net544 (1,574)
Net cash provided by (used in) investing activities(300,070)(336,040)
Cash flows from financing activities:
Proceeds from long-term borrowings95,000 600,000 
Proceeds from receivables facility 65,910 63,749 
Proceeds (payments) from interest rate swaps23,908 16,322 
Repurchases of common stock(93,356)— 
Repayment of long-term borrowings, including call premiums(56,646)(607,444)
Repayment of receivables facility(57,984)(44,432)
Dividends on common stock(32,207)(32,038)
Payments on finance leases(7,237)(10,982)
Other financing, net(12,374)(25,803)
Net cash provided by (used in) financing activities(74,986)(40,628)
Cash and cash equivalents and restricted cash and restricted cash equivalents:
Net increase (decrease)(11,254)(70,028)
Beginning balance129,950 373,580 
Ending balance$118,696 $303,552 
See Notes to Condensed Consolidated Financial Statements


5

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, “ADT” or the “Company”), provides security, interactive, and smart home solutions to consumer and small business customers in the United States (“U.S.”).
Prior to March 11, 2024, the Company was 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”). Following a registered secondary offering of the Company’s common stock (“Common Stock”) by certain Apollo affiliates (and the Company’s concurrent repurchase from the underwriters of 15 million shares of Common Stock that were the subject of the offering), including the exercise of the underwriters’ overallotment option which closed on March 19, 2024, Apollo beneficially owns less than 50% of the Company’s outstanding common stock, which includes Common Stock and Class B common stock (“Class B Common Stock”) combined, and less than 50% of the Company’s outstanding Common Stock, and the Company ceased to be a “controlled company” under the New York Stock Exchange (the “NYSE”) rules.
Basis of Presentation
The condensed consolidated financial statements included herein have been prepared in U.S. dollars in accordance with generally accepted accounting principles in the United States of America (“GAAP”).
The financial statements included herein comprise the consolidated results of ADT Inc. and its wholly-owned subsidiaries. The results of companies acquired (if applicable) are included from the effective dates of acquisition, and all intercompany transactions have been eliminated.
In August 2023, ADT entered into an agreement to divest its commercial business (the “Commercial Business”), which was completed in October 2023 (the “Commercial Divestiture”). Beginning in the third quarter of 2023, the Company presented its Commercial Business as a discontinued operation. Refer to Note 4 “Divestitures” for additional information. Unless otherwise noted, amounts and disclosures throughout these Notes to Condensed Consolidated Financial Statements relate to the Company’s continuing operations.
The Company sold its shares in SNTNL LLC (“Canopy”) during the fourth quarter of 2023. Prior to the sale, the Company used the equity method of accounting to account for its investment in Canopy as it had the ability to exercise significant influence but did not control.
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 for a fair statement of 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, 2023 included herein was derived from the audited consolidated financial statements as of that date. Certain information and footnote disclosures required in the annual consolidated financial statements have been omitted as appropriate. 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, 2023 (the “2023 Annual Report”).
Certain prior period amounts have been reclassified to conform with the current period presentation.
Use of Estimates
The preparation of these 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.
6

ADT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Segments
The Company reports its results in two operating and reportable segments, Consumer and Small Business (“CSB”) and Solar. Prior to the third quarter of 2023, the Commercial Business was reflected in the Commercial reportable segment.
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.
Accounting Pronouncements
Recently Adopted Accounting Pronouncements
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.
The Company adopted the roll-forward requirement effective January 1, 2024. The Company does not currently have any material supplier finance programs, and the guidance will be applied prospectively to any future arrangements.
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 that 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.
The Company adopted this guidance effective January 1, 2024. This guidance did not impact the Company.
Recently Issued Accounting Pronouncements
Disclosure Improvements - ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative, represents changes to clarify or improve disclosure and presentation requirements of a variety of topics.
The effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. The Company is currently evaluating the potential impact of this guidance on its financial statements and disclosures.
Segment Reporting - ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, improves reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. In addition, the guidance, among other requirements, enhances interim disclosures, clarifies circumstances in which an entity can disclose multiple segment measures of profit or loss, and provides new segment disclosure requirements for entities with a single reportable segment.
The amendments in this guidance are effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. This guidance should be applied retrospectively to all periods presented. Early adoption is permitted. The Company is currently evaluating the impact of this guidance.
Income Taxes - ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, focuses on improvements to income tax disclosures, primarily related to the rate reconciliation and income tax paid information. In addition, the update includes certain other amendments to improve the effectiveness of income tax disclosures.
The guidance is effective for annual periods beginning after December 15, 2024, and should be applied prospectively, with retrospective application also a permitted option. Early adoption is permitted. The Company is currently evaluating the impact of this guidance.
Significant Accounting Policies
Unless otherwise noted, the Company’s accounting policies discussed below, or included within the respective footnotes herein, do not materially differ from those disclosed in the 2023 Annual Report.
7

ADT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Cash and Cash Equivalents and Restricted Cash and Restricted Cash Equivalents
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)March 31, 2024December 31, 2023
Cash and cash equivalents$4,041 $14,621 
Restricted cash and restricted cash equivalents(1)
114,655 115,329 
Ending balance$118,696 $129,950 
________________
(1)    Primarily includes funds received, net of payments, from State Farm Fire & Casualty Company (“State Farm”), inclusive of accrued interest, in connection with the State Farm Development Agreement (as defined and discussed in Note 14 “Related Party Transactions”). The remaining amount of restricted cash relates to the Company’s uncommitted receivables securitization financing agreement (the “2020 Receivables Facility”). Refer to Note 6 “Debt.”
Inventories, net
Inventories, net includes finished goods and work-in-progress. Work-in-progress is not material.
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, and which the Company may retrieve upon termination of the contract with the customer. Deferred subscriber acquisition costs represent selling expenses (primarily commissions) that are incremental to acquiring customers.
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)March 31, 2024December 31, 2023
Gross carrying amount$6,534,535 $6,404,479 
Accumulated depreciation(3,523,116)(3,398,543)
Subscriber system assets, net$3,011,419 $3,005,936 
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 (“SG&A”), respectively, as follows:
Three Months Ended March 31,
(in thousands)20242023
Depreciation of subscriber system assets$138,303 $137,431 
Amortization of deferred subscriber acquisition costs
$54,605 $44,232 
Accrued Expenses and Other Current Liabilities
(in thousands)March 31, 2024December 31, 2023
Accrued interest$85,514 $111,204 
Payroll-related accruals71,365 118,495 
Opportunity Fund (see Note 14 “Related Party Transactions”)
91,686 93,950 
Operating lease liabilities (see Note 13 “Leases”)
16,672 15,979 
Accrued dividends49,965 32,207 
Other accrued liabilities259,577 229,480 
Accrued expenses and other current liabilities$574,779 $601,315 
8

ADT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Merger, Restructuring, Integration, and Other
Merger, restructuring, integration, and other represents certain direct and incremental costs resulting from acquisitions made by the Company, integration and optimization costs as a result of those acquisitions, costs related to the Company’s restructuring efforts, as well as fair value remeasurements and impairment charges on certain strategic investments.
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 and restricted cash and restricted cash equivalents, as applicable from time to time, are investments in money market mutual funds. These investments are generally classified as Level 1 fair value measurements, which represent unadjusted quoted prices in active markets for identical assets or liabilities.
As of March 31, 2024 and December 31, 2023, investments in money market mutual funds were $41 million and $55 million, respectively.
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 the 2020 Receivables Facility approximate their fair values as interest rates on these borrowings approximate current market rates.
March 31, 2024December 31, 2023
(in thousands)Carrying
Amount		Fair
Value		Carrying
Amount		Fair
Value
Long-term debt instruments subject to fair value disclosures(1)
$7,808,512 $7,716,887 $7,756,800 $7,732,159 
________________
(1)    Excludes finance leases.
Derivative Financial Instruments - Derivative financial instruments are reported at fair value as either assets or liabilities that 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 7 “Derivative Financial Instruments” for the fair values of the Company’s derivative financial instruments.
CSB Retail Installment Contract Receivables - The fair values of the Company’s CSB retail installment contract receivables are determined using a discounted cash flow model and are classified as Level 3 fair value measurements.
March 31, 2024December 31, 2023
(in thousands)Carrying
Amount		Fair
Value		Carrying
Amount		Fair
Value
Retail installment contract receivables, net$673,813 $489,869 $673,635 $487,685 
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.
9

ADT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In addition to details provided below, the Company’s disaggregated revenue is presented on the face of the Condensed Consolidated Statements of Operations, which includes monitoring and related services and security installation, product, and other revenue presented for its CSB segment, as well as Solar installation, product, and other revenue.
CSB 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, which are recognized when these services are provided to the customer, 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). 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 security installation, product, and other revenue.
Three Months Ended March 31,
(in thousands)
20242023
Amortization of deferred subscriber acquisition revenue$83,376 $69,698 
CSB 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, which is primarily recognized at a point in time based upon the nature of the transaction and contractual terms, and any monitoring and related services, which are recognized when these services are provided to the customer.
Solar - As discussed in Note 4 “Divestitures,” the Company began exiting the residential solar business in January 2024.
During the three months ended March 31, 2024, revenue and cost of revenue from the sale of solar equipment was not material. During the three months ended March 31, 2023, revenue and cost of revenue from the sale of solar equipment was approximately $75 million and $52 million, respectively.
Allowance for Credit Losses
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.
Three Months Ended March 31,
(in thousands)20242023
Beginning balance$53,229 $35,482 
Provision for credit losses53,465 23,648 
Write-offs, net of recoveries(1)
(39,767)(24,646)
Ending balance$66,927 $34,484 
________________
(1)Recoveries were not material for the periods presented. As such, the Company presented write-offs, net of recoveries.
Retail Installment Contract Receivables, Net
For security system transactions occurring under both Company-owned and customer-owned equipment models, 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 there is no significant financing component.
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.
10

ADT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The balance of unbilled retail installment contract receivables comprises:
(in thousands)March 31, 2024December 31, 2023
Retail installment contract receivables, gross$676,367 $674,827 
Allowance for credit losses(2,554)(1,192)
Retail installment contract receivables, net$673,813 $673,635 
Balance Sheet Classification:
Accounts receivable, net$245,887 $238,961 
Other assets427,926 434,674 
Retail installment contract receivables, net$673,813 $673,635 
The allowance for credit losses relates to retail installment contract receivables from CSB outright sales transactions. As of March 31, 2024, the current and delinquent billed retail installment contract receivables were not material.
As of March 31, 2024 and December 31, 2023, retail installment contract receivables, net, used as collateral for borrowings under the 2020 Receivables Facility were $619 million and $610 million, respectively. Refer to Note 6 “Debt” for further discussion regarding the 2020 Receivables Facility.
Contract Assets
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’s right to the consideration becomes unconditional, which generally occurs over the course of a 24-, 36-, or 60-month period as additional services are performed and billed. There is no significant financing component.
During the three months ended March 31, 2024 and 2023, contract assets recognized were not material.
The balance of contract assets for residential transactions comprises:
(in thousands)March 31, 2024December 31, 2023
Contract assets, gross$39,787 $39,627 
Allowance for credit losses(5,054)(9,025)
Contract assets, net$34,733 $30,602 
Balance Sheet Classification:
Prepaid expenses and other current assets$16,969 $15,365 
Other assets17,764 15,237 
Contract assets, net$34,733 $30,602 
3.     SEGMENT INFORMATION
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.
As discussed in Note 1 “Description of Business and Summary of Significant Accounting Policies,” the Company reports results in two operating and reportable segments: CSB and Solar.
The Company organizes its segments based on customer type as follows:
•CSB - Customers in the CSB segment comprise owners and renters of residential properties, small business operators, and other individual consumers. The CSB segment includes the sale, installation, servicing, and monitoring of integrated security and automation systems and other related offerings.
•Solar - Customers in the Solar segment comprise residential homeowners. The Solar segment includes the sale and installation of solar systems, energy storage solutions, roofing services, and other related offerings.
11

ADT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The CSB and Solar segments include the respective revenue and operating costs related to the activities noted above, other operating costs associated with support functions related to these operations, and certain dedicated corporate costs and other income and expense items. The CSB segment includes general corporate costs and other income and expense items not included in the Solar segment.
The CODM uses Adjusted EBITDA from continuing operations (“Adjusted EBITDA”), which is the Company’s segment profit measure, to evaluate segment performance. Adjusted EBITDA is defined as income (loss) from continuing operations adjusted for (i) interest; (ii) taxes; (iii) depreciation and amortization, including depreciation of subscriber system assets and other fixed assets and amortization of dealer and other intangible assets; (iv) amortization of deferred costs and deferred revenue associated with subscriber acquisitions; (v) share-based compensation expense; (vi) merger, restructuring, integration, and other items; (vii) impairment charges; and (viii) non-cash, non-routine, or other adjustments or charges not necessary to operate our business.
The CODM does not review the Company's assets by segment; therefore, such information is not presented.
Reconciliations
The following table presents total revenue by segment and a reconciliation to consolidated total revenue:
Three Months Ended March 31,
(in thousands)20242023
CSB$1,189,672 $1,132,476 
Solar19,639 144,835 
Total Revenue$1,209,311 $1,277,311 
12

ADT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents Adjusted EBITDA by segment and a reconciliation to consolidated income (loss) from continuing operations before income taxes and equity in net earnings (losses) of equity method investee:
Three Months Ended March 31,
(in thousands)20242023
Adjusted EBITDA by segment:
CSB$637,691 $590,031 
Solar(23,501)(10,545)
Total$614,190 $579,486 
Reconciliation:
Total segment Adjusted EBITDA
$614,190 $579,486 
Less:
Interest expense, net88,931 171,302 
Depreciation and intangible asset amortization334,353 362,351 
Amortization of deferred subscriber acquisition costs54,605 44,232 
Amortization of deferred subscriber acquisition revenue(83,376)(69,698)
Share-based compensation expense7,971 12,774 
Merger, restructuring, integration, and other(1)
45,182 15,537 
Goodwill impairment(2)
— 241,630 
Other solar exit costs(3)
38,370 — 
Other, net(4)
5,967 2,076 
Equity in net earnings (losses) of equity method investee— (2,677)
Income (loss) from continuing operations before income taxes and equity in net earnings (losses) of equity method investee$122,187 $(198,041)
________________
(1)    During 2024, primarily includes $37 million of charges related to asset impairments and other write-offs, employee separation costs, and other charges related to the ADT Solar Exit (Refer to Note 4 “Divestitures”). During 2023, primarily includes restructuring costs primarily related to certain facility exits, as well as integration and third-party costs related to the strategic optimization of the solar business operations following the ADT Solar acquisition.
(2)    Represents impairment charges associated with the Company’s Solar reporting unit. Refer to Note 5 “Goodwill and Other Intangible Assets.”
(3)    Includes other costs associated with the ADT Solar Exit, including charges of $19 million primarily associated with the disposition of the existing installation pipeline and $15 million associated with the write-down and disposition of inventory on hand. Refer to Note 4 “Divestitures.”
(4)    During 2024, primarily includes unrealized (gains) / losses on interest rate swaps presented within other income (expense). Refer to Note 7 “Derivative Financial Instruments.”
4.    DIVESTITURES
The Company may decide to divest or exit a portion of its business for various reasons, including efforts to focus on its other businesses. The Company presents discontinued operations for components of the business that are either disposed of through sale (or qualify as held for sale), abandonment, or spin-off if these actions also represent a strategic shift that has or will have a major effect on the Company’s financial results.
ADT Solar Exit
In November 2023, the Company announced a plan to streamline the solar business to focus on the top performing markets and rationalize the overhead and infrastructure of the business. As part of this plan, the Company closed a significant number of branches that operated the solar business along with making associated headcount reductions.
On January 19, 2024, after a strategic review of the business and continued macroeconomic and industry pressures, the Company’s board of directors (the “Board of Directors” or the “Board”) approved a plan to fully exit the residential solar business (the “ADT Solar Exit”). The solar business is currently reflected in the solar operating and reportable segment.
13

ADT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
During the three months ended March 31, 2024, the Company incurred aggregate charges (in thousands) which have been recognized within their respective line items as follows:
Solar Installation, Product, and Other Cost of Revenue
Selling, general, and administrative expenses
Merger, restructuring, integration, and other
Total
Employee separation costs
$— $— $10,933 $10,933 
Asset impairments and write-offs(1)
— 3,124 17,244 20,368 
Contract termination charges
1,404 — 3,797 5,201 
Write-down and disposition of inventory
14,574 — — 14,574 
Other(2)
4,950 14,318 5,012 24,280 
Total
$20,928 $17,442 $36,986 $75,356 
________________
(1)    Primarily relates to long-lived asset impairments and write-off of deferred implementation costs associated with cloud computing arrangements.
(2)    Primarily relates to charges associated with the disposition of the existing installation pipeline.
During the three months ended March 31, 2024, the Company paid approximately $11 million primarily related to employee separation costs associated with the ADT Solar Exit.
Commercial Divestiture
On October 2, 2023, the Company completed the Commercial Divestiture for a total purchase price of approximately $1,613 million and received net proceeds of approximately $1,585 million, subject to certain customary post-closing adjustments as set forth in the purchase agreement.
The results of the Commercial Business are classified as a discontinued operation in the Company’s Condensed Consolidated Statements of Operations for the historical periods presented. Additionally, for periods prior to the Commercial Divestiture, the cash flows and comprehensive income (loss) of the Commercial Business have not been segregated and are included in the Condensed Consolidated Statements of Cash Flows and Condensed Consolidated Statements of Comprehensive Income (Loss), respectively, for any period presented prior to the Commercial Divestiture.
Refer to Note 11 “Net Income (Loss) per Share” for basic and diluted earnings per share information for discontinued operations.
The following reconciliations represent the major classes of line items of the Commercial Business presented as discontinued operations within the Condensed Consolidated Statements of Operations and certain information within the Condensed Consolidated Statements of Cash Flows for any period presented prior to the Commercial Divestiture.
Statements of Operations Information
During the three months ended March 31, 2024, activity relating to the Commercial Divestiture was not material.
(in thousands)Three Months Ended March 31, 2023
Revenue$335,043 
Cost of revenue
224,033 
Selling, general, and administrative expenses68,855 
Depreciation and intangible asset amortization20,704 
Other income and expense items2,434 
Income (loss) from discontinued operations before income taxes19,017 
Income tax benefit (expense)(11,073)
Income (loss) from discontinued operations, net of tax$7,944 
14

ADT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Cash Flow Information
(in thousands)Three Months Ended March 31, 2023
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and intangible asset amortization$20,704 
Share-based compensation expense$3,208 
Cash flows from investing activities:
Subscriber system asset expenditures$(3,676)
Purchases of property and equipment$(1,079)
Transition Services Agreement
In connection with the Commercial Divestiture, the Company entered into a Transition Services Agreement (the “Commercial TSA”). During the three months ended March 31, 2024, the Company recognized $12 million of income from the Commercial TSA, which is reflected in other income (expense).
5.     GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
There were no changes in the carrying amounts of goodwill since December 31, 2023.
As of March 31, 2024 and December 31, 2023, the Company had accumulated goodwill impairment losses of $712 million associated with the Company’s Solar reporting unit, and as of December 31, 2023, the balance of goodwill in the Solar reporting unit was zero.
During the three months ended March 31, 2023, the Company recorded goodwill impairment charges of $242 million in its Solar reporting unit.
Other Intangible Assets
March 31, 2024December 31, 2023
(in thousands)Gross Carrying
Amount		Accumulated
Amortization		Net Carrying
Amount		Gross Carrying
Amount		Accumulated
Amortization		Net Carrying
Amount
Definite-lived intangible assets:
Contracts and related customer relationships$5,688,746 $(3,067,312)$2,621,434 $5,571,456 $(2,937,245)$2,634,211 
Dealer relationships1,518,020 (637,963)880,057 1,518,020 (618,154)899,866 
Other209,773 (200,278)9,495 209,773 (199,357)10,416 
Total definite-lived intangible assets7,416,539 (3,905,553)3,510,986 7,299,249 (3,754,756)3,544,493 
Indefinite-lived intangible assets:
Trade name1,333,000 — 1,333,000 1,333,000 — 1,333,000 
Intangible assets$8,749,539 $(3,905,553)$4,843,986 $8,632,249 $(3,754,756)$4,877,493 
    
15

ADT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The change in the net carrying amount of contracts and related customer relationships during the period was as follows:
(in thousands)
Balance as of December 31, 2023$2,634,211 
Customer contract additions, net of dealer charge-backs(1)
117,391 
Amortization(130,168)
Balance as of March 31, 2024$2,621,434 
________________
(1)     The weighted-average amortization period for customer contract additions was approximately 15 years.
Payments for customer contract additions under the Company’s authorized dealer program and from other third parties are reflected as dealer generated customer accounts and bulk account purchases on the Condensed Consolidated Statements of Cash Flows.
Definite-Lived Intangible Asset Amortization Expense
Three Months Ended March 31,
(in thousands)20242023
Definite-lived intangible asset amortization expense$150,898 $177,480 
16

ADT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6.     DEBT
The Company’s debt is comprised of the following (in thousands):
DescriptionIssuedMaturity
Interest Rate(1)
Interest PayableMarch 31, 2024December 31, 2023
First Lien Term Loan B due 2030
10/13/202310/13/2030
Term SOFR +2.50%
Quarterly$1,371,563 $1,375,000 
First Lien Revolving Credit Facility
3/16/20186/23/2026
Term SOFR +2.75%
Quarterly
50,000 — 
Term Loan A Facility3/14/20233/14/2028
Term SOFR +2.25%
Quarterly617,500 625,625 
First Lien Notes due 20244/4/20194/15/20245.250%2/15 and 8/1599,999 99,999 
First Lien Notes due 20264/4/20194/15/20265.750%3/15 and 9/151,350,000 1,350,000 
First Lien Notes due 20278/20/20208/31/20273.375%6/15 and 12/151,000,000 1,000,000 
First Lien Notes due 20297/29/20218/1/20294.125%2/1 and 8/11,000,000 1,000,000 
ADT Notes due 20325/2/20167/15/20324.875%1/15 and 7/15728,016 728,016 
ADT Notes due 20427/5/20127/15/20424.875%1/15 and 7/1521,896 21,896 
Second Lien Notes due 20281/28/20201/15/20286.250%1/15 and 7/151,300,000 1,300,000 
2020 Receivables Facility(2)
3/5/20202/20/2029VariousMonthly443,930 436,004 
Other debt(3)
668 751 
Total debt principal, excluding finance leases7,983,572 7,937,291 
Plus: Finance lease liabilities(4)
80,436 87,161 
Less: Unamortized debt discount, net(14,814)(15,005)
Less: Unamortized deferred financing costs(37,079)(39,620)
Less: Unamortized purchase accounting fair value adjustment and other(123,167)(125,866)
Total debt7,888,948 7,843,961 
Less: Current maturities of long-term debt, net of unamortized debt discount(322,070)(320,612)
Long-term debt$7,566,878 $7,523,349 
_________________
(1)    Interest rate as of March 31, 2024. Interest on the 2020 Receivables Facility is primarily based on the Secured Overnight Financing Rate (“SOFR”) +0.95% and Cost of Funds (“COF”) +0.85%.
(2)    Maturity date for the 2020 Receivables Facility represents the final maturity date of current loans borrowed under the facility.
(3)    Other debt primarily consists of vehicle loans at various interest rates and maturities.
(4)    Refer to Note 13 “Leases” for additional information regarding the Company’s finance leases.
As of March 31, 2024, the Company was in compliance with all financial covenant and other maintenance tests for all of its debt obligations.
Significant changes in the Company’s debt during the three months ended March 31, 2024 were as follows:
First Lien Credit Agreement
The Company’s first lien credit agreement, dated as of July 1, 2015 (together with subsequent amendments and restatements, the “First Lien Credit Agreement”), contains a term loan (the “First Lien Term Loan B due 2030”) and the First Lien Revolving Credit Facility.
During the three months ended March 31, 2024, the Company borrowed $95 million and repaid $45 million under the First Lien Revolving Credit Facility; and as of March 31, 2024, the available borrowing capacity was $525 million.
During the three months ended March 31, 2023, there were no borrowings or repayments under the First Lien Revolving Credit Facility.
Subsequent Event - The Company amended and restated the First Lien Credit Agreement, which reduced the interest rate on the First Lien Term Loan B due 2030 from Term SOFR +2.50% to Term SOFR +2.25%.
17

ADT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Other than as described above, the loans under the amended and restated First Lien Credit Agreement continue to have the same terms as provided under the existing First Lien Credit Agreement and the parties to the amended and restated First Lien Credit Agreement continue to have the same obligations set forth in the existing First Lien Credit Agreement.
First Lien Notes due 2024 Redemption
Subsequent Event - In April 2024, the Company redeemed the remaining outstanding principal balance of $100 million of the First Lien Notes due 2024, excluding accrued and unpaid interest, using proceeds from the Company’s First Lien Revolving Credit Facility.
2020 Receivables Facility
Under the 2020 Receivables Facility, the Company obtains financing by selling or contributing certain retail installment contract receivables to the Company’s wholly-owned consolidated bankruptcy-remote special purpose entity (the “SPE”), which then grants a security interest in those retail installment contract receivables as collateral for cash borrowings.
In March 2024, the Company amended the agreement governing the 2020 Receivables Facility, pursuant to which the uncommitted revolving period was extended from March 2024 to April 2024.
As of March 31, 2024, the Company had an uncommitted available borrowing capacity under the 2020 Receivables Facility of approximately $56 million.
Subsequent Event - In April 2024, the Company amended the agreement governing the 2020 Receivables Facility, pursuant to which, among other things, the borrowing capacity was increased from $500 million to $550 million and the uncommitted revolving period was extended from April 2024 to April 2025.
Variable Interest Entity
The SPE meets the definition of a variable interest entity (“VIE”) for which the Company is the primary beneficiary as it has the power to direct the SPE’s activities and the obligation to absorb losses or the right to receive benefits of the SPE. As such, the Company consolidates the SPE’s assets, liabilities, and financial results of operations.
The SPE’s assets and liabilities primarily consist of a portion of the Company’s unbilled retail installment contract receivables, net, as discussed in Note 2 “Revenue and Receivables,” and borrowings under the 2020 Receivables Facility, as presented above.
The 2020 Receivables Facility did not have a material impact to the Condensed Consolidated Statements of Operations during the periods presented.
Solar Receivables Facility
On August 2, 2023, Compass Solar Group, LLC (“Compass”) and ADT Solar Finance LLC (“ADT Solar Finance”), each an indirect wholly-owned subsidiary of ADT Inc. entered into a Receivables Financing Agreement with Mizuho Bank, Ltd. (the “Solar Receivables Financing Agreement”) to finance receivables generated by the installation of residential solar systems. The Solar Receivables Financing Agreement, among other things, provides for an uncommitted revolving loan facility in the aggregate principal amount of up to $300 million which loans are secured by substantially all the assets of ADT Solar Finance (the “Solar Receivables Facility”).
As of March 31, 2024, the Company has not borrowed any amounts under the Solar Receivable Facility, and given the ADT Solar Exit, the Company does not expect to borrow any amounts under the Solar Receivables Facility. The Solar Receivables Facility’s uncommitted revolving period will expire in August 2024, unless terminated beforehand.
7.     DERIVATIVE FINANCIAL INSTRUMENTS
The Company's derivative financial instruments primarily consist of interest rate swap contracts, which were entered into with the objective of managing exposure to variability in interest rates on the Company's debt. As of July 2023, SOFR is the applicable benchmark for all of the Company's interest rate swap contracts. All interest rate swap contracts are reported in the Condensed Consolidated Balance Sheets at fair value.
18

ADT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For interest rate swap contracts that are:
•Not designated as cash flow hedges: Unrealized gains and losses are recognized in interest expense, net, and other income (expense) depending on the nature of the underlying that the swaps are economically hedging.
•Designated as cash flow hedges: Unrealized gains and losses are recognized as a component of accumulated other comprehensive income (loss) (“AOCI”) and are reclassified into interest expense, net, in the same period in which the related interest on debt affects earnings.
For interest rate swap contracts that have been de-designated as cash flow hedges and for which forecasted cash flows are:
•Probable or reasonably possible of occurring: Unrealized gains and losses previously recognized as a component of AOCI are reclassified into interest expense, net, in the same period in which the related interest on variable-rate debt affects earnings through the original maturity date of the related interest rate swap contracts.
•Probable of not occurring: Unrealized gains and losses previously recognized as a component of AOCI are immediately reclassified into interest expense, net.
The cash flows associated with interest rate swap contracts that included an other-than-insignificant financing element at inception are reflected as cash flows from financing activities.
The cash flows associated with interest rate swap contracts that were entered into with the intention of offsetting the economic overhedged position of a portion of our existing interest rate swaps are reflected as cash flows from investing activities.
Interest Rate Swaps
As of March 31, 2024 and December 31, 2023, the Company’s interest rate swaps consisted of the following (in thousands):
ExecutionMaturityDesignationNotional Amount
October 2019September 2026Not designated$2,800,000 
March 2023(1)
March 2028Not designated100,000 
April 2023(1)
March 2028Not designated200,000 
December 2023(2)
September 2026Not designated700,000 
Total notional amount$3,800,000 
_________________
(1)    Interest rate swaps entered into to partially hedge the Term Loan A Facility.
(2)     Interest rate swaps entered into to offset the excess notional interest rate swaps as a result of the partial redemption of the First Lien Term Loan due 2026. The changes in fair value associated with these swaps and the over-hedged swaps are reflected in other income (expense).
Classification and Fair Value of Interest Rate Swaps
(in thousands)March 31, 2024December 31, 2023
Prepaid expenses and other current assets$82,423 $74,974 
Other assets$88,996 $76,493 
Accrued expenses and other current liabilities$7,266 $5,312 
Other liabilities$256 $1,325 
Unrealized Gain (Loss) on Interest Rate Swaps
Three Months Ended March 31,
Statement of Operations Classification (in thousands)
20242023
Interest expense, net
$16,747 $(32,516)
Other income (expense)
$(6,601)$— 
19

ADT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Cash Flow Hedges Reclassifications out of AOCI
Three Months Ended March 31,
(in thousands)
20242023
Interest expense, net$2,129 $5,449 
Income tax (benefit) expense$(512)$(1,314)
As of March 31, 2024 and December 31, 2023, AOCI, net of tax, related to previously designated cash flow hedges was $12 million and $13 million, respectively.
As of March 31, 2024, AOCI associated with previously designated cash flow hedges that is estimated to be reclassified to interest expense, net, within the next twelve months is not material.
8.     INCOME TAXES
Unrecognized Tax Benefits
The Company’s unrecognized tax benefits relate to tax years that remain subject to audit by the taxing authorities in the U.S. federal, state and local, and foreign jurisdictions. During the three months ended March 31, 2024, the Company did not have a material change to its unrecognized tax benefits from those disclosed in the 2023 Annual Report. Based on the current status of its income tax audits, the Company expects approximately $29 million of its unrecognized tax benefits will be resolved in the next twelve months.
Effective Tax Rate
The effective tax rate can vary from period to period due to permanent tax adjustments, discrete items such as the settlement of income tax audits and changes in tax laws, as well as recurring factors such as changes in the overall state tax rate. The discussion below is based on the continuing operations of the Company.
The Company’s income tax expense for the three months ended March 31, 2024 was $31 million, resulting in an effective tax rate for the period of 25.1%. The effective tax rate primarily represents the federal statutory rate of 21.0%, a state tax rate, net of federal benefits, of 5.5%, partially offset by a favorable impact of 2.1% related to a decrease in unrecognized tax benefits related to prior years.
The Company’s income tax benefit for the three months ended March 31, 2023 was $74 million, resulting in an effective tax rate for the period of 37.3%. The effective tax rate primarily represents the federal statutory tax rate of 21.0%, a state tax rate, net of federal benefits, of 8.9% and unfavorable impacts of 5.6% related to the Solar goodwill impairment, partially offset by favorable impacts of 5.0% from federal tax credits.
9.     EQUITY
Common Stock and Class B Common Stock
The Company has two classes of common stock, including Common Stock and Class B Common Stock.
During the three months ended March 31, 2024, shares issued resulted from the vesting of restricted stock units (“RSUs”) and stock option exercises related to share-based compensation awards.
Share Repurchase Plan
On January 24, 2024, the Company's Board of Director's announced a share repurchase plan (the “Share Repurchase Plan”), pursuant to which the Company is authorized to repurchase, through January 29, 2025, up to a maximum aggregate amount of $350 million of shares of the Company's Common Stock under this Share Repurchase Plan.
The Company may effect these repurchases pursuant to one or more open market or private transactions, including pursuant to a plan that qualifies for the affirmative defense provided by Rule 10b5‐1 under the Exchange Act, or pursuant to one or more accelerated share repurchase agreements.
20

ADT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Company is not obligated to repurchase any of its shares of Common Stock, and the timing and amount of any repurchases will depend on legal requirements, market conditions, stock price, the availability of the safe harbor provided by Rule 10b-18 under the Exchange Act, alternative uses of capital, and other factors.
During the three months ended March 31, 2024, the Company repurchased and retired 15 million shares of its Common Stock under the Share Repurchase Plan and paid approximately $93 million (or approximately $6.22 per share). As of March 31, 2024, the Company had approximately $257 million remaining under the Share Repurchase Plan.
Refer to Note 14 “Related Party Transactions” for further information.
Dividends
(in thousands, except per share data)
Common StockClass B Common Stock
Declaration DateRecord DatePayment DatePer ShareAggregatePer ShareAggregate
Three Months Ended March 31, 2024
1/24/20243/14/20244/4/2024$0.055 $47,059 $0.055 $3,011 
Three Months Ended March 31, 2023
2/28/20233/16/20234/4/2023$0.035 $30,342 $0.035 $1,916 
Subsequent Event - On April 25, 2024, the Company announced a dividend of $0.055 per share to holders of Common Stock and Class B Common Stock of record on June 13, 2024, which will be paid on July 9, 2024.
Accumulated Other Comprehensive Income (Loss)
There were no material reclassifications out of AOCI. Refer to Note 7 “Derivative Financial Instruments” for AOCI reclassifications associated with cash flow hedges.
10.     SHARE-BASED COMPENSATION
RSUs
During the first quarter of 2024, the Company completed its annual long-term incentive plan equity award to employees and granted approximately 3.9 million RSUs under its 2018 Omnibus Incentive Plan, as amended (the “2018 Plan”) with a grant date fair value of $6.51 equal to the closing price per share of the Company’s Common Stock on the date of grant. These RSUs are service-based awards with a three-year graded vesting period from the date of grant.
Options
During the first quarter of 2024, the Company granted approximately 6.8 million options under the 2018 Plan. These options are service-based awards with a three-year graded vesting period from the date of grant and have an exercise price of $6.51, which is equal to the closing price per share of the Company’s common stock on the date of grant, and a contractual term of ten years from the grant date. The weighted-average grant date fair value for the options granted was $2.56.
The Company used a binomial lattice model to determine the grant date fair value for options granted and included the following assumptions:
Expected exercise term (years)
7
Expected volatility(1)
49.9%
Expected dividend yield(2)
3.4%
Risk-free interest rate(3)
4.0%
_________________
(1)    Estimated using historical and implied stock price volatility of the Company.
(2)    Calculated by taking the annual dividend run-rate and dividing by the stock price at date of grant.
(3)    Based on the U.S. Treasury yield curve.
21

ADT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
11.     NET INCOME (LOSS) PER SHARE
The Company applies the two-class method for computing and presenting net income (loss) per share for each class of common stock, which allocates current period net income (loss) to each class of common stock and participating securities based on dividends declared and participation rights in the remaining undistributed earnings or losses.
Basic net income (loss) per share is computed by dividing the net income (loss) allocated to each class of common stock by the related weighted-average number of shares outstanding during the period. Diluted net income (loss) per share gives effect to all securities representing potential common shares that were dilutive and outstanding during the period for each class of common stock and excludes potentially dilutive securities whose effect would have been anti-dilutive.
Common Stock
Potential shares of Common Stock include (i) incremental shares related to the vesting or exercise of share-based compensation awards, warrants, and other options to purchase additional shares of the Company’s Common Stock calculated using the treasury stock method and (ii) incremental shares of Common Stock issuable upon the conversion of Class B Common Stock. Additionally, the basic and diluted earnings per share computations for Common Stock exclude approximately 9 million unvested shares as their vesting is contingent upon achievement of certain performance requirements.
Three Months Ended March 31,
in thousands, except per share amounts
20242023
Allocation of income (loss) from continuing operations - basic
$86,041 $(119,130)
Dilutive effect
3,169 — 
Allocation of income (loss) from continuing operations - diluted
$89,210 $(119,130)
Allocation of income (loss) from discontinued operations, net of tax - basic$18 $7,466 
Dilutive effect
— — 
Allocation of income (loss) from discontinued operations, net of tax - diluted$18 $7,466 
Weighted-average shares outstanding - basic855,893 854,299 
Dilutive effect(1)
62,501 — 
Weighted-average shares outstanding - diluted918,394 854,299 
Income (loss) from continuing operations per share - basic
$0.10 $(0.14)
Income (loss) from continuing operations per share - diluted
$0.10 $(0.14)
Income (loss) per share from discontinued operations, net of tax - basic
$— $0.01 
Income (loss) per share from discontinued operations, net of tax - diluted
$— $0.01 
_________________
(1)    During the three months ended March 31, 2024, 17 million shares of Common Stock that would be dilutive were excluded from the diluted earnings per share calculations because their effects would have been anti-dilutive.

During the three months ended March 31, 2023, all potential shares of Common Stock that would be dilutive were excluded from the diluted earnings per share calculations because their effects would have been anti-dilutive.
22

ADT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Class B Common Stock
Three Months Ended March 31,
in thousands, except per share amounts
20242023
Allocation of net income (loss) from continuing operations - basic
$5,491 $(7,651)
Dilutive effect
(158)— 
Allocation of net income (loss) from continuing operations - diluted
$5,333 $(7,651)
Allocation of income (loss) from discontinued operations, net of tax - basic$1 $478 
Dilutive effect
— — 
Allocation of income (loss) from discontinued operations, net of tax - diluted$1 $478 
Weighted-average shares outstanding - basic54,745 54,745 
Dilutive effect(1)
— — 
Weighted-average shares outstanding - diluted54,745 54,745 
Net income (loss) from continuing operations per share - basic
$0.10 $(0.14)
Net income (loss) from continuing operations per share - diluted
$0.10 $(0.14)
Income (loss) per share from discontinued operations, net of tax - basic
$— $0.01 
Income (loss) per share from discontinued operations, net of tax - diluted
$— $0.01 
________________
(1)    There were no potential shares of Class B Common Stock during the periods presented.
12.     COMMITMENTS AND CONTINGENCIES
Contractual Obligations
There have been no significant changes to the Company’s contractual obligations as compared to December 31, 2023, except as discussed below:
Google Commercial Agreement
In July 2020, the Company and Google entered into a Master Supply, Distribution, and Marketing Agreement (the “Google Commercial Agreement”), pursuant to which Google has agreed to supply the Company with certain Google devices as well as certain Google video and analytics services (“Google Devices and Services”), for sale to the Company’s customers.
The Google Commercial Agreement also specifies that each party shall contribute $150 million toward joint marketing, customer acquisition, training of the Company’s employees, and product technology updates related to the Google Devices and Services. In August 2022, the Company and Google executed an amendment to the Google Commercial Agreement, pursuant to which Google has agreed to commit an additional $150 million to fund growth, data and insights, product innovation and technology advancements, customer acquisition, and marketing, as mutually agreed by the Company and Google, (together with the initial amounts, the “Google Success Funds”).
During the three months ended March 31, 2024 and 2023, $7.4 million and $12.5 million, respectively, of the Google Success Funds were approved for reimbursement to the Company for certain joint marketing and customer acquisition expenses incurred by the Company.
Google Cloud Agreement Addendum
In December 2023, the Company and Google entered into an addendum to the Company’s existing agreement with Google for using Google cloud services (the “Google Cloud Agreement Addendum”), pursuant to which Google has agreed to provide certain credits, discounts, and other incentives for use of the Google Cloud Platform to the Company, and the Company has committed to purchasing $200 million of Google Cloud Platform services over seven years (through December 2030), with
23

ADT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
$35 million in the first two years, $65 million in the next two years after that, and $100 million in the last three years of the commitment. The Company may elect to cancel the commitment in return for a cancellation fee of 30% of the total remaining commitment amount and loss of any discounts, remaining credits, or other incentives provided under the Google Cloud Agreement Addendum.
During the three months ended March 31, 2024, the Company made purchases toward this commitment of $5 million.
Other Commitments
During the fourth quarter of 2023, the Company entered into an agreement with one of its vendors to purchase at least $190 million of security system equipment and components through March 2025. This commitment is also satisfied through purchases made by the Company’s dealer network. During the three months ended March 31, 2024, purchases toward this commitment were $43 million.
Guarantees
In the normal course of business, the Company is liable for contract completion and product performance. As of March 31, 2024 and December 31, 2023, the Company’s guarantees primarily relate to standby letters of credit related to its insurance programs and totaled $78 million for both periods, respectively. The Company does not believe such obligations will materially affect its financial position, results of operations, or cash flows.
Legal Proceedings
The Company is subject to various claims and lawsuits in the ordinary course of business, which include among other things commercial general liability claims, automobile liability claims, contractual disputes, worker’s compensation claims, labor law and employment claims, claims that the Company infringed on the intellectual property of others, and consumer and employment class actions. The Company is also subject to regulatory and governmental examinations, information requests and subpoenas, inquiries, investigations, and threatened legal actions and proceedings. In connection with such formal and informal inquiries, the Company receives numerous requests, subpoenas, and orders for documents, testimony, and information in connection with various aspects of its activities. There have been no material changes to these matters from those disclosed in the 2023 Annual Report.
The Company records accruals for losses that are probable and reasonably estimable. These accruals are based on a variety of factors such as judgment, probability of loss, opinions of internal and external legal counsel, and actuarially determined estimates of claims incurred but not yet reported based upon historical claims experience. Legal costs in connection with claims and lawsuits in the ordinary course of business are expensed as incurred. Additionally, the Company records insurance recovery receivables from third-party insurers when recovery has been determined to be probable. The Company has not accrued for any losses for which the likelihood of loss cannot be assessed, is less than probable, or the range of possible loss cannot be estimated.
As of March 31, 2024 and December 31, 2023, the Company’s accrual for ongoing claims and lawsuits within the scope of an insurance program totaled $104 million and $110 million, respectively. The Company’s accrual related to ongoing claims and lawsuits not within the scope of an insurance program is not material.
24

ADT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
13.     LEASES
Company as Lessee
As part of normal operations, the Company leases real estate, vehicles, and equipment.
Right-of-Use Assets and Lease Liabilities
(in thousands)
March 31, 2024December 31, 2023
Presentation and Classification:
OperatingCurrentPrepaid expenses and other current assets$71 $75 
OperatingNon-currentOther assets82,447 91,725 
FinanceNon-current
Property and equipment, net(1)
75,001 82,803 
Total right-of-use assets$157,519 $174,603 
OperatingCurrentAccrued expenses and other current liabilities$16,672 $15,979 
FinanceCurrentCurrent maturities of long-term debt28,893 33,934 
OperatingNon-currentOther liabilities81,028 84,695 
FinanceNon-currentLong-term debt51,543 53,227 
Total lease liabilities$178,136 $187,835 
_________________
(1)Finance right-of-use assets are recorded net of accumulated depreciation, which was approximately $57 million and $60 million as of March 31, 2024 and December 31, 2023, respectively.
Lease Cost
Three Months Ended March 31,
(in thousands)
20242023
Operating lease cost$6,728 $8,102 
Finance lease cost:
Amortization of right-of-use assets5,281 5,210 
Interest on lease liabilities1,205 726 
Variable lease costs7,744 14,209 
Total lease cost $20,958 $28,247 
Right-of-Use Assets Obtained in Exchange for Lease Obligations(1)
Three Months Ended March 31,
(in thousands)
20242023
Operating leases$3,061 $2,332 
Finance leases$10,403 $9,222 
_________________
(1)Includes both continuing and discontinued operations.
Company as Lessor
The Company is a lessor in certain Company-owned transactions as the Company has identified a lease component associated with the right-of-use of the security system and a non-lease component associated with the monitoring and related services.
25

ADT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For transactions in which (i) the timing and pattern of transfer is the same for the lease and non-lease components and (ii) the lease component would be classified as an operating lease if accounted for separately, the Company applies the practical expedient to aggregate the lease and non-lease components and accounts for the combined transaction based upon its predominant characteristic, which is the non-lease component. The Company accounts for the combined component as a single performance obligation under the applicable revenue guidance and recognizes the underlying assets within subscriber system assets, net.
14.     RELATED PARTY TRANSACTIONS
The Company’s related party transactions primarily relate to products and services received from, or monitoring and related services provided to, other entities affiliated with Apollo, and, from time to time, management, consulting, and transaction advisory services provided by Apollo to the Company, as well as transactions between the Company and State Farm. There were no notable related party transactions during the periods presented other than as described below.
Apollo
Offering and Share Repurchase
On March 6, 2024, the Company and certain entities managed by affiliates of Apollo Global Management, Inc. (the “Selling Stockholders”) entered into an underwriting agreement (the “Underwriting Agreement”) with Morgan Stanley & Co. LLC and Barclays Capital Inc., as representatives of the underwriters named therein, including Apollo Global Securities, LLC, an affiliate of Apollo (collectively, the “Underwriters”), in connection with the offer and sale by the Selling Stockholders (the “Offering”) of 65 million shares of the Company’s Common Stock, and, at the option of the Underwriters, up to an additional 9.75 million shares of Common Stock (the “Underwriters’ Option”).
As part of the Offering, the Company purchased 15 million shares of Common Stock under its Share Repurchase Plan from the Underwriters (the “Share Repurchase”). The Company paid approximately $93 million (or approximately $6.22 per share) for the Share Repurchase, which was the same per share price paid by the Underwriters to the Selling Stockholders. The repurchase is reflected as a reduction to additional paid-in-capital and as a financing cash outflow.
The Offering and the Share Repurchase closed on March 11, 2024. On March 15, 2024, the Underwriters exercised the Underwriters’ Option in full, which subsequently closed on March 19, 2024. The Company did not pay any underwriting fees in connection with the Share Repurchase, including on behalf of the Selling Stockholders or otherwise.
All the shares in the Offering were sold by the Selling Stockholders. The Company did not receive any of the proceeds from the sale of shares by the Selling Stockholders in the Offering.
Other
During the three months ended March 31, 2023, the Company incurred fees to Apollo of $1 million related to Apollo’s performance of placement agent services related to the initial funding of the Term Loan A Facility.
State Farm
State Farm owns approximately 15% of the Company’s issued and outstanding common stock, and as a result, is a related party.
In October 2022, the Company, ADT LLC (an indirect wholly owned subsidiary of the Company), and State Farm entered into a development agreement (the “State Farm Development Agreement”) in connection with State Farm’s strategic investment in ADT. Pursuant to the State Farm Development Agreement, State Farm committed up to $300 million to fund certain initiatives as agreed to between the Company and State Farm related to the partnership (the “Opportunity Fund”), of which the Company has received $100 million. Amounts held by the Company in the Opportunity Fund will be restricted until the Company uses the funds, as agreed upon with State Farm, in accordance with the State Farm Development Agreement.
As of March 31, 2024 and December 31, 2023, the balance in the portion of the Opportunity Fund held by the Company was $92 million and $94 million, respectively.
During the three months ended March 31, 2024 and 2023, the Company made payments from the Opportunity Fund of $3 million and $2 million, respectively. Interest earned on the Opportunity Fund was not material.
26

ADT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Sunlight Financial LLC
ADT Solar used Sunlight Financial LLC (“Sunlight”), an entity previously affiliated with Apollo, to access certain loan products for ADT Solar customers. As of December 2023, Sunlight was no longer affiliated with Apollo, and as a result, was no longer a related party.
During the three months ended March 31, 2023, total loans funded by Sunlight were $45 million, and the Company incurred financing fees of $6 million.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Table of Contents
INTRODUCTION
The following discussion and analysis contains forward-looking statements about our business, operations, and financial performance based on current plans and estimates that involve risks, uncertainties, and assumptions, which could differ materially from actual results. Factors that could cause such differences are discussed in the sections of this Quarterly Report on Form 10-Q titled “Cautionary Statements Regarding Forward-Looking Statements” and Item 1A “Risk Factors.”
To obtain a more comprehensive understanding of our financial condition, changes in financial condition, and results of operations, the following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements and the related notes included in our 2023 Annual Report.
BUSINESS AND BASIS OF PRESENTATION
Our Business
ADT (or “we,” “our,” and “us”), provides security, interactive, and smart home solutions to consumer and small business customers in the U.S.
As of March 31, 2024, we served approximately 6.4 million security monitoring service subscribers.
Our mission is to empower people to protect and connect what matters most with safe, smart, and sustainable solutions, delivered through innovative offerings, unrivaled safety, and a premium experience because we believe that everyone deserves to feel safe.
Basis of Presentation
We report financial and operating information for our two segments: CSB and Solar. All financial information presented in this section has been prepared in U.S. dollars in accordance with GAAP, excluding our non-GAAP measures, and includes the accounts of ADT Inc. and its wholly-owned subsidiaries. All intercompany transactions have been eliminated.
Business Updates
ADT Solar Exit
On January 19, 2024, after a strategic review of the business and continued macroeconomic and industry pressures, our Board of Directors approved a plan to fully exit the residential solar business. The Company discontinued all sales and marketing activities during the first quarter and expects to discontinue substantially all field operations by the end of the second quarter.
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During the three months ended March 31, 2024, we incurred aggregate charges of $75 million, related to (a) employee separation costs of $11 million, (b) long-lived asset impairments and write-off of deferred implementation costs associated with cloud computing arrangements of $20 million, (c) contract termination charges of $5 million, (d) the write-down and disposition of inventory on hand of $15 million, and (e) other charges of $24 million primarily related to charges associated with the disposition of the existing installation pipeline.
We expect to incur up to approximately an additional $35 million associated with the ADT Solar Exit.
Additionally, during the three months ended March 31, 2024, we paid $11 million, and we expect to spend an additional $40 million - $60 million, associated with the ADT Solar Exit.
The estimated charges and cash expenditures resulting from these actions could change materially, and we may incur additional charges and cash expenditures due to various factors including unknown or unforeseen costs as part of these actions.
Commercial Divestiture
As discussed in Note 1 “Description of Business and Summary of Significant Accounting Policies” and Note 4 “Divestitures,” we divested our Commercial Business during the fourth quarter of 2023. The results of the Commercial Business are classified as a discontinued operation in the Company’s Condensed Consolidated Statements of Operations for the historical periods presented. Additionally, for periods prior to the Commercial Divestiture, the cash flows and comprehensive income (loss) of the Commercial Business have not been segregated and are included in the Condensed Consolidated Statements of Cash Flows and Condensed Consolidated Statements of Comprehensive Income (Loss), respectively, for any period presented prior to the Commercial Divestiture.
The Company’s reported operating metrics, gross customer revenue attrition and recurring monthly revenue (as defined and discussed below), have been recast for any period prior to the sale to reflect only the CSB segment.
Income received in connection with the Commercial TSA is recognized in other income (expense), and the expenses incurred by the Company to support the transition are recorded based on the nature of the expense.
During 2023, we utilized a significant portion of our net operating losses (“NOLs”) to offset the gain generated from the sale of the Commercial Business. As of December 31, 2023, we disclosed that we expect to utilize our remaining NOLs during 2024. The Company expects to become a federal cash taxpayer in 2024 or 2025 depending on future losses generated by the business, specifically with regard to the ADT Solar Exit.
Unless otherwise noted, our results of operations discussed below relate to continuing operations and may be impacted by the Commercial Divestiture.
FACTORS AFFECTING OPERATING RESULTS
The factors described herein could have a material adverse effect on our business, financial condition, results of operations, cash flows, and key performance indicators.
Generally, a significant upfront investment is required to acquire new CSB subscribers that in turn provide ongoing and predictable recurring revenue generated from our monitoring services and other subscriber-based offerings. Although the economics of an installation may vary depending on the customer type, acquisition channel, and product offering, we generally achieve revenue break-even in approximately two years.
New customer additions and customer attrition have a direct impact on our financial results, including revenue, operating income, and cash flows. A portion of our recurring customer base can be expected to cancel its service each year as customers may choose to terminate or not to renew their contracts for a variety of reasons, including relocation, cost, loss to competition, or service issues. Relocations are sensitive to changes in the residential housing market, and fewer relocations generally lead to improvements in gross customer revenue attrition, but fewer new customer additions. Additionally, non-payment disconnects generally increase in a weaker macroeconomic environment. We have been experiencing fewer relocation disconnects and higher non-pay disconnects largely related to housing market conditions and the weaker macroeconomic environment. We may continue to experience fluctuations in these or other trends in the future as changes in the general macroeconomic environment or housing market develop.
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Our CSB results are impacted by the mix of transactions under a Company-owned equipment model versus a customer-owned equipment model (referred to as outright sales), as there are different accounting treatments applicable to each model, as well as the mix, price, and type of offerings sold. As we continue to build our partnership with Google, introduce new or enhance our current offerings, and refine our go-to-market approach, we expect to see a shift toward an increasing proportion of outright sales transactions, which will impact results in future periods when those changes occur. We have experienced, and we expect to continue to experience, an increase in the proportion of ADT self set-up customers, which are considered outright sales and typically have lower monthly recurring fees than our professional installations but we believe will allow us to grow our subscriber base through access to the fast-growing do-it-yourself (“DIY”) market.
We may experience an increase in costs associated with factors such as (i) offering a wider variety of products and services; (ii) providing a greater mix of interactive and smart home solutions; (iii) replacing or upgrading certain system components or technology due to technological advancements, cybersecurity upgrades, or otherwise; (iv) supply chain disruptions; (v) inflationary pressures on costs such as materials, labor, and fuel; and (vi) other changes in prices, interest rates, or terms from our suppliers, vendors, or third-party lenders.
As part of our response to changes or pressures in the current macroeconomic environment, we have been evaluating, and continue to evaluate, cost-saving opportunities such as reducing headcount or our physical facilities footprint when appropriate, and reducing non-essential spend. While we have experienced some increase in costs as a result of inflation, we have, for the most part, been able to offset the rising costs through price increases to our customers, as well as cost-saving opportunities.
KEY PERFORMANCE INDICATORS
We evaluate our results using certain key performance indicators, including operating metrics such as recurring monthly revenue (“RMR”) and gross customer revenue attrition, as well as the non-GAAP measure Adjusted EBITDA. Computations of our key performance indicators may not be comparable to other similarly titled measures reported by other companies.
Certain operating metrics are approximated, as there may be variations to reported results due to certain adjustments we might make in connection with the integration over several periods of acquired companies that calculated these metrics differently or periodic reassessments and refinements in the ordinary course of business, including changes due to system conversions or historical methodology differences in legacy systems.
RMR
RMR is generated by contractual recurring fees for monitoring and other recurring services provided to our CSB customers, including contracts monitored but not owned.
We use RMR to evaluate our overall sales, installation, and retention performance. Additionally, we believe the presentation of RMR is useful to investors because it measures the volume of revenue under contract at a given point in time, which is useful for forecasting future revenue performance as the majority of our revenue comes from recurring sources.
Gross Customer Revenue Attrition
Gross customer revenue attrition for our CSB segment is defined as RMR lost as a result of customer attrition, net of dealer charge-backs and reinstated customers, excluding contracts monitored but not owned and self-setup/DIY customers. Customer sites are considered canceled when all services are terminated. Dealer charge-backs represent customer cancellations charged back to the dealers because the customer canceled service during the charge-back period, which is generally thirteen months.
Gross customer revenue attrition is calculated on a trailing twelve-month basis, the numerator of which is the RMR lost during the period due to attrition, net of dealer charge-backs and reinstated customers, and the denominator of which is total annualized RMR based on an average of RMR under contract at the beginning of each month during the period, in each case, excluding contracts monitored but not owned and self-setup/DIY customers.
We use gross customer revenue attrition to evaluate our CSB retention and customer satisfaction performance, as well as evaluate subscriber trends by vintage year. Additionally, we believe the presentation of gross customer revenue attrition is useful to investors as it provides a means to evaluate drivers of customer attrition and the impact of retention initiatives.
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP measure. Our definition of Adjusted EBITDA, a reconciliation of Adjusted EBITDA to income (loss) from continuing operations (the most comparable GAAP measure), and additional information, including a description of the limitations relating to the use of Adjusted EBITDA, are provided under “—Non-GAAP Measures.”
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RESULTS OF OPERATIONS
Three Months Ended March 31,
(in thousands, except as otherwise indicated)
20242023$ Change
Revenue:
Monitoring and related services$1,062,652 $1,028,634 $34,018 
Security installation, product, and other127,020 103,842 23,178 
Solar installation, product, and other19,639 144,835 (125,196)
Total revenue1,209,311 1,277,311 (68,000)
Cost of revenue (exclusive of depreciation and amortization shown separately below):
Monitoring and related services154,713 161,788 (7,075)
Security installation, product, and other39,592 29,836 9,756 
Solar installation, product, and other41,522 98,344 (56,822)
Total cost of revenue235,827 289,968 (54,141)
Selling, general, and administrative expenses398,453 393,374 5,079 
Depreciation and intangible asset amortization334,353 362,351 (27,998)
Merger, restructuring, integration, and other45,182 15,537 29,645 
Goodwill impairment— 241,630 (241,630)
Operating income (loss)195,496 (25,549)221,045 
Interest expense, net(88,931)(171,302)82,371 
Other income (expense)15,622 (1,190)16,812 
Income (loss) from continuing operations before income taxes and equity in net earnings (losses) of equity method investee122,187 (198,041)320,228 
Income tax benefit (expense)(30,655)73,937 (104,592)
Income (loss) from continuing operations before equity in net earnings (losses) of equity method investee91,532 (124,104)215,636 
Equity in net earnings (losses) of equity method investee— (2,677)2,677 
Income (loss) from continuing operations91,532 (126,781)218,313 
Income (loss) from discontinued operations, net of tax
19 7,944 (7,925)
Net income (loss)$91,551 $(118,837)$210,388 
Key Performance Indicators:(1)
RMR$353,274 $344,417 $8,857 
Gross customer revenue attrition (percent)13.1%12.9%N/A*
Adjusted EBITDA(2)
$614,190 $579,486 $34,704 
_______________________
(1)Refer to the “—Key Performance Indicators” section for the definitions of these key performance indicators.
(2)Adjusted EBITDA is a non-GAAP measure. Refer to the “—Non-GAAP Measures” section for the definition of this term and a reconciliation to the most comparable GAAP measure.
*N/A — Not applicable.
Revenue
Revenue, as compared to the prior period, primarily reflects:
•CSB Monitoring and related services (“M&S Revenue”): higher recurring revenue of $34 million primarily driven by an increase in average prices.
•CSB Security installation, product, and other: (i) an increase in the amortization of deferred subscriber acquisition revenue of $14 million associated with customers under a Company-owned model, as well as (ii) an increase in installation revenue of $9 million primarily driven by a higher volume of outright sales transactions and higher installation revenue per unit associated with new customers under the outright sales transaction model.
•Solar installation, product, and other: fewer sales and installations as a result of the ADT Solar Exit.
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The increase in RMR, as compared to the prior period, was primarily driven by an increase in average prices on new and existing subscribers.
Gross customer revenue attrition, as compared to the prior period, increased primarily due to higher non-payment disconnects partially offset by a decrease in relocations.
Cost of Revenue
Cost of revenue, as compared to the prior period, primarily reflects:
•CSB: an increase in installation costs due to a higher volume of outright sales transactions partially offset by a decrease in monitoring and related service costs due to a lower volume of in-person service tickets as a result of our Virtual Assistance Program.
•Solar: a decrease in installation costs primarily due to fewer sales and installations as a result of the ADT Solar Exit, including $21 million primarily associated with the write-down and disposition of inventory.
Selling, General, and Administrative Expenses
During the three months ended March 31, 2024, the increase in SG&A, as compared to the prior period, was primarily driven by:
•an increase of $13 million in CSB selling costs primarily related to the amortization of deferred subscriber acquisition costs and commissions and
•an increase of $11 million in the CSB allowance for credit losses primarily related to residential customers, partially offset by
•a decrease in Solar of $18 million, which includes a decrease associated with reduced operations offset by impairment charges associated with the ADT Solar Exit.
Depreciation and Intangible Asset Amortization
During the three months ended March 31, 2024, the decrease in depreciation and intangible asset amortization, as compared to the prior period, was primarily driven by a decrease in the amortization of customer relationship intangible assets of $32 million primarily related to certain assets acquired as part of the acquisition of The ADT Security Corporation in 2016, partially offset by an increase in the amortization of acquired customer contracts of $7 million.
Merger, restructuring, integration, and other
During the three months ended March 31, 2024, merger, restructuring, integration, and other primarily includes asset impairments and other write-offs, employee separation costs, and other charges associated with the ADT Solar Exit. Refer to Note 4 “Divestitures” for additional information.
During the three months ended March 31, 2023, merger, restructuring, integration, and other primarily includes restructuring costs primarily related to certain facility exits, as well as integration and third-party costs related to the strategic optimization of our Solar business operations following the acquisition of ADT Solar.
Goodwill Impairment
During the three months ended March 31, 2024, we did not record any goodwill impairment charges.
During the three months ended March 31, 2023, we recorded goodwill impairment charges associated with our Solar reporting unit of $242 million as a result of then current macroeconomic conditions, including the impact of rising interest rates and financial market conditions on the Company’s third-party lenders and customer demand, as well as ADT Solar’s underperformance of operating results in the first quarter of 2023 relative to expectations.
Interest Expense, Net
During the three months ended March 31, 2024, the decrease in interest expense, net, as compared to the prior year period, was primarily driven by (i) an increase in unrealized gains (losses) of $49 million on our interest rate swaps and (ii) lower interest expense primarily related to lower principal amounts outstanding on our First Lien Term Loan due 2030 and our ADT Notes due 2024.
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Other Income (Expense)
During the three months ended March 31, 2024, the increase in other income (expense), as compared to the prior period, was primarily due to income received under the Commercial TSA.
Income Tax Benefit (Expense)
During the three months ended March 31, 2024, income tax expense impacted our annual effective tax rate primarily as a result of the federal statutory rate of 21.0%, a state tax rate, net of federal benefits of 5.5%, partially offset by a favorable impact of 2.1% related to a decrease in unrecognized tax benefits related to prior years.
During the three months ended March 31, 2023 income tax benefit impacted our annual effective tax rate primarily as a result of the federal statutory tax rate of 21.0%, a state tax rate, net of federal benefits, of 8.9% and unfavorable impacts of 5.6% related to the Solar goodwill impairment, partially offset by favorable impacts of 5.0% from federal tax credits.
Refer to Note 8 “Income Taxes” for details on our effective tax rate.
Deferred Tax Assets
We have a significant amount of deferred tax assets, against which we take valuation allowances that relate to the uncertainty of our ability to utilize these deferred tax assets in future periods. We review periodically those matters that can influence our decision as to whether or not a valuation allowance is appropriate. Among those matters considered are pending and enacted legislation. We will consider each quarter whether any developments to such legislation, together with the other factors we consider, require a valuation allowance.
We believe that our deferred tax assets for disallowed interest under Internal Revenue Code (“IRC”) Section 163(j) will continue to grow from their current level. There is currently significant uncertainty in the matters we consider when determining whether it is appropriate to take additional valuation allowances. While we have not reported any material changes to our valuation allowances since our 2023 Annual Report, we may determine to do so in subsequent periods. Any material change to our valuation allowance would materially and adversely affect our operating results and may result in a net loss position for any given period.
NON-GAAP MEASURES
To provide investors with additional information in connection with our results as determined in accordance with GAAP, we disclose Adjusted EBITDA as a non-GAAP measure. This measure is not a financial measure calculated in accordance with GAAP, and it should not be considered as a substitute for net income, operating income, or any other measure calculated in accordance with GAAP, and may not be comparable to similarly titled measures reported by other companies.
Adjusted EBITDA
We believe Adjusted EBITDA is useful to investors to measure the operational strength and performance of our business. We believe the presentation of Adjusted EBITDA is useful as it provides investors additional information about our operating profitability adjusted for certain non-cash items, non-routine items we do not expect to continue at the same level in the future, as well as other items not core to our operations. Further, we believe Adjusted EBITDA provides a meaningful measure of operating profitability because we use it for evaluating our business performance, making budgeting decisions, and comparing our performance against other peer companies using similar measures.
We define Adjusted EBITDA as income (loss) from continuing operations adjusted for (i) interest; (ii) taxes; (iii) depreciation and amortization, including depreciation of subscriber system assets and other fixed assets and amortization of dealer and other intangible assets; (iv) amortization of deferred costs and deferred revenue associated with subscriber acquisitions; (v) share-based compensation expense; (vi) merger, restructuring, integration, and other items; (vii) impairment charges; and (viii) non-cash, non-routine, or other adjustments or charges not necessary to operate our business.
There are material limitations to using Adjusted EBITDA as it does not include certain significant items, including interest, taxes, depreciation and amortization, and other adjustments which directly affect our income (loss) from continuing operations (the most comparable GAAP measure). These limitations are best addressed by considering the economic effects of the excluded items independently and by considering Adjusted EBITDA in conjunction with income (loss) from continuing operations as calculated in accordance with GAAP.
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The table below reconciles Adjusted EBITDA to income (loss) from continuing operations:
Three Months Ended March 31,
(in thousands)20242023$ Change
Income (loss) from continuing operations
$91,532 $(126,781)$218,313 
Interest expense, net88,931 171,302 (82,371)
Income tax expense (benefit)30,655 (73,937)104,592 
Depreciation and intangible asset amortization334,353 362,351 (27,998)
Amortization of deferred subscriber acquisition costs54,605 44,232 10,373 
Amortization of deferred subscriber acquisition revenue(83,376)(69,698)(13,678)
Share-based compensation expense7,971 12,774 (4,803)
Merger, restructuring, integration, and other(1)
45,182 15,537 29,645 
Goodwill impairment(2)
— 241,630 (241,630)
Other solar exits costs(3)
38,370 — 38,370 
Other, net(4)
5,967 2,076 3,891 
Adjusted EBITDA (from continuing operations)
$614,190 $579,486 $34,704 
________________
(1)    During 2024, primarily includes $37 million of charges related to asset impairments and other write-offs, employee separation costs, and other charges related to the ADT Solar Exit (Refer to Note 4 “Divestitures”). During 2023, primarily includes restructuring costs primarily related to certain facility exits, as well as integration and third-party costs related to the strategic optimization of the solar business operations following the ADT Solar acquisition.
(2)    Represents impairment charges associated with our Solar reporting unit. Refer to Note 5 “Goodwill and Other Intangible Assets.”
(3)    Includes other costs associated with the ADT Solar Exit, including charges of $19 million primarily associated with the disposition of the existing installation pipeline and $15 million associated with the write-down and disposition of inventory on hand. Refer to Note 4 “Divestitures.”
(4)    During 2024, primarily includes unrealized (gains) / losses on interest rate swaps presented within other income (expense). Refer to Note 7 “Derivative Financial Instruments.”
Adjusted EBITDA in total and by segment are set forth below. As noted above, Adjusted EBITDA is our segment profit measure pursuant to GAAP and is therefore not a non-GAAP financial measure with respect to our segments.
Three Months Ended March 31,
(in thousands)20242023$ Change
CSB$637,691 $590,031 $47,660 
Solar(23,501)(10,545)(12,956)
Adjusted EBITDA (from continuing operations)
$614,190 $579,486 $34,704 
The factors listed below exclude amounts that are outside of our definition of Adjusted EBITDA. Refer to the discussions above under “—Results of Operations” for further details.
CSB:
During the three months ended March 31, 2024, the increase, as compared to the prior period, was primarily due to:
•higher M&S Revenue, net of the associated costs, of $43 million,
•higher other income of $20 million, including TSA income, partially offset by
•higher selling, general, and administrative expenses, excluding commissions, of $15 million, including higher provision for credit losses.
Solar:
During the three months ended March 31, 2024, respectively, the decrease, as compared to the prior period, was primarily due to:
•lower installation revenue, net of the associated costs and commissions, of $36 million, partially offset by
•lower selling, general and administrative expenses, excluding commissions, of $22 million.
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LIQUIDITY AND CAPITAL RESOURCES
Liquidity and capital resources primarily consisted of the following:
(in thousands)March 31, 2024
Cash and cash equivalents$4,041 
Restricted cash and restricted cash equivalents$114,655 
Availability under First Lien Revolving Credit Facility$525,000 
Uncommitted available borrowing capacity under 2020 Receivables Facility
$56,070 
Carrying amount of total debt outstanding, including finance leases
$7,888,948 
Liquidity
We expect our ongoing sources of liquidity to include cash generated from operations, borrowings under our credit facilities, and the issuance of equity and/or debt securities as appropriate given market conditions. Our future cash needs are expected to include cash for operating activities including working capital, principal and interest payments on our debt, capital expenditures, potential dividend payments to our stockholders, potential share repurchases under our Share Repurchase Plan, and from time to time, strategic investments or other initiatives that we may undertake.
We are a highly leveraged company with significant debt service requirements and have both fixed-rate and variable-rate debt. We may periodically seek to repay, redeem, repurchase, or refinance our indebtedness, or seek to retire or purchase our outstanding securities through cash purchases in the open market, privately negotiated transactions, a 10b5-1 repurchase plan, or otherwise, and any such transactions may involve material amounts. Cash outflows for interest payments are not consistent between quarters, with larger outflows occurring in the first and third quarters, and may vary as a result of our variable rate debt.
We believe our cash position, available borrowing capacity under our credit agreements, and cash provided by operating activities are, and will continue to be, adequate to meet our operational and business needs in the next twelve months, as well as our long-term liquidity needs.
Material Cash Requirements
There have been no significant changes to our material cash requirements, commitments and contingencies, or off-balance sheet arrangements from those disclosed in our 2023 Annual Report, except as discussed below.
Share Repurchase Plan
On January 24, 2024, the Company's Board of Directors announced the Share Repurchase Plan (the “Share Repurchase Plan”), pursuant to which the Company is authorized to repurchase, through January 29, 2025, up to a maximum aggregate amount of $350 million of shares of the Company's Common Stock under the Share Repurchase Plan. As of March 31, 2024, we have approximately $257 million remaining under the Share Repurchase Plan.
ADT Solar Exit
During the three months ended March 31, 2024, we paid $11 million, and we expect to spend an additional $40 million - $60 million, associated with the ADT Solar Exit
Other Contractual Obligations
As discussed in Note 12 “Commitments and Contingencies,” during the three months ended March 31, 2024, we made purchases toward our commitment under the Google Cloud Agreement of $5 million.
In addition, during the three months ended March 31, 2024, purchases toward our commitment to one of our vendors to purchase at least $190 million of security system equipment and components were $43 million.
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Long-Term Debt
Significant changes and activity related to our long-term debt since our 2023 Annual Report are discussed below. Refer to Note 6 “Debt” for further discussion on our debt agreements and activity.
First Lien Credit Agreement
During the three months ended March 31, 2024, we borrowed $95 million and repaid $45 million under the First Lien Revolving Credit Facility.
In April 2024, we amended and restated the First Lien Credit Agreement, which reduced the interest rate on our First Lien Term Loan B due 2030 from Term SOFR +2.50% to Term SOFR +2.25%.
First Lien Notes due 2024 Redemption
In April 2024, we redeemed the remaining outstanding principal balance of $100 million of our First Lien Notes due 2024, excluding accrued and unpaid interest, using proceeds from the First Lien Revolving Credit Facility.
2020 Receivables Facility
In March 2024, we amended the agreement governing the 2020 Receivables Facility, pursuant to which the uncommitted revolving period was extended from March 2024 to April 2024.
As of March 31, 2024, the outstanding balance was $444 million.
In April 2024, we amended the agreement governing the 2020 Receivables Facility, pursuant to which, among other things, the borrowing capacity was increased from $500 million to $550 million and the uncommitted revolving period was extended from April 2024 to April 2025.
Solar Receivables Facility
On August 2, 2023, we entered into the Solar Receivables Facility Financing Agreement to finance receivables generated by the installation of residential solar systems, which, among other things, provides for an uncommitted revolving loan facility in the aggregate principal amount of up to $300 million. As of March 31, 2024, we have not borrowed any amounts under the Solar Receivable Facility, and given the ADT Solar Exit, we do not expect to borrow any amounts under the Solar Receivables Facility. The Solar Receivables Facility’s uncommitted revolving period will expire in August 2024, unless terminated beforehand.
Debt Covenants
As of March 31, 2024, we were in compliance with all financial covenant and other maintenance tests for all our debt obligations. We do not believe there is a material risk of future noncompliance with our financial covenant and other maintenance tests.
Dividends
During the three months ended March 31, 2024 and 2023, we declared aggregate dividends of $47 million ($0.055 per share) and $30 million ($0.035 per share) on our Common Stock, respectively, and $3 million ($0.055 per share) and $2 million ($0.035 per share) on our Class B Common Stock, respectively.
On April 25, 2024, we announced a dividend of $0.055 per share to holders of Common Stock and Class B Common Stock of record on June 13, 2024, which will be paid on July 9, 2024.
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Cash Flow Analysis
The amounts and discussion below includes cash flows from both continuing operations and discontinued operations consistent with the presentation on the Statements of Cash Flows for periods prior to the Commercial Divestiture.
Three Months Ended March 31,
(in thousands)20242023$ Change
Net cash provided by (used in):
Operating activities$363,802 $306,640 $57,162 
Investing activities$(300,070)$(336,040)$35,970 
Financing activities$(74,986)$(40,628)$(34,358)
Cash Flows from Operating Activities
The increase in net cash provided by operating activities, as compared to the prior period, was primarily due to a decrease in cash interest of $54 million primarily related to reduced principal balances on our First Lien Term Loan due 2030 and our ADT Notes due 2024 and lower payroll-related payments, partially offset by results of the Commercial Business included only in the prior period due to the Commercial Divestiture.
The remainder of the activity related to changes in assets and liabilities due to the volume and timing of other operating cash receipts and payments with respect to when the transactions are reflected in earnings. Refer to the discussions above under “—Results of Operations” for further details.
Cash Flows from Investing Activities
The decrease in net cash used in investing activities, as compared to the prior period, was primarily due to:
•a decrease in subscriber system assets expenditures of $19 million due to fewer adds and
•a decrease in purchases of property, plant, and equipment of $19 million.
Cash Flows from Financing Activities
The increase in net cash used in financing activities, as compared to the prior period, was primarily due to:
•share repurchases during the current period of $93 million, partially offset by
•an increase in net borrowings on our long-term debt of $46 million primarily related to our First Lien Revolving Credit Facility and
•an increase in proceeds from our interest rate swaps of $8 million.
CRITICAL ACCOUNTING ESTIMATES
We disclosed our critical accounting estimates in our 2023 Annual Report, which include estimates prepared in accordance with GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations.
Critical accounting estimates are based on, among other things, estimates, assumptions, and judgments made by management that include inherent risks and uncertainties. Our estimates are based on relevant information available at the end of each period. Actual results could differ materially from these estimates under different assumptions or market conditions.
There were no material changes in our critical accounting estimates since our 2023 Annual Report.
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CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains certain information that may constitute “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 and are made in reliance on the safe harbor protections provided thereunder. While we have specifically identified certain information as being forward-looking in the context of its presentation, we caution you that all statements contained in this Form 10-Q that are not clearly historical in nature, including statements regarding the ADT Solar restructuring activities and our subsequent announcement related to the ADT Solar Exit; the Commercial Divestiture; the expected timetable for realizing expected benefits and synergies of the Commercial Divestiture; the strategic investment by and long term partnership with State Farm; anticipated financial performance, including the Company’s ability to achieve its stated guidance metrics and its progress toward its medium-term targets; management’s plans and objectives for future operations; the successful development, commercialization, and timing of new or joint products; the expected timing of product commercialization with State Farm or any changes thereto, including the ADT home security program for State Farm; business prospects; outcomes of regulatory proceedings; market conditions; our ability to deploy our business continuity and disaster plans and procedures to successfully respond to catastrophic events; our strategic partnership and ongoing relationship with Google; the expected timing of product commercialization with Google or any changes thereto; the successful internal development, commercialization, and timing of our next generation platform and innovative offerings; the successful conversion of customers who continue to utilize outdated technology; the current and future market size for existing, new, or joint products; any stated or implied outcomes with regards to the foregoing; and other matters. Any stated or implied outcomes with regards to the foregoing are forward-looking.
Without limiting the generality of the preceding sentences, any time we use the words “ expects,” “intends,” “will,” “anticipates,” “believes,” “confident,” “continue,” “propose,” “seeks,” “could,” “may,” “should,” “estimates,” “forecasts,” “might,” “goals,” “objectives,” “targets,” “planned,” “projects,” and, in each case, their negative or other various or comparable terminology, and similar expressions, we intend to clearly express that the information deals with possible future events and is forward-looking in nature. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking.
However, the absence of these words or similar expressions does not mean that a statement is not forward-looking. For ADT, particular uncertainties that could cause our actual results to be materially different than those expressed in our forward- looking statements include, without limitation:
•our ability to effectively implement our strategic partnership with, commercialize products with, or utilize any of the amounts invested in us by State Farm or provided by State Farm for research and development or other purposes;
•our ability to keep pace with rapid technological changes, including the development of our next-generation platform, and industry changes;
•our ability to effectively implement our strategic partnership with or utilize any of the amounts invested in us by Google;
•the impact of supply chain disruptions;
•our ability to maintain and grow our existing customer base;
•our ability to sell our products and services or launch new products and services in highly competitive markets, including the home security and automation market and the solar market, and to achieve market acceptance with acceptable margins;
•our ability to successfully upgrade obsolete equipment installed at our customers’ premises in an efficient and cost-effective manner;
•changes in law, economic and financial conditions, including tax law changes, changes to privacy requirements, changes to telemarketing, email marketing and similar consumer protection laws, interest volatility, and trade tariffs and restrictions applicable to the products we sell;
•any material changes to the valuation allowances we take with respect to our deferred tax assets;
•the impact of potential information technology, cybersecurity, or data security breaches;
•our dependence on third-party providers, suppliers, and dealers to enable us to produce and distribute our products and services in a cost-effective manner that protects our brand;
•our ability to successfully implement an equipment ownership model that best satisfies the needs of our customers and to successfully implement and maintain our receivables securitization financing agreement or similar arrangements;
•our ability to successfully pursue alternate business opportunities and strategies;
•our ability to integrate various companies we have acquired in an efficient and cost-effective manner;
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•the amount and timing of our cash flows and earnings, which may be impacted by customer, competitive, supplier and other dynamics and conditions;
•our ability to maintain or improve margins through business efficiencies; and
•the other factors that are described under the heading “Risk Factors” in our last Annual Report on Form 10-K for the year ended December 31, 2023.
Forward-looking statements and information involve risks, uncertainties, and other factors that could cause actual results to differ materially from those expressed or implied in, or reasonably inferred from, such statements, including without limitation, the risks and uncertainties disclosed or referenced under the heading “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q and Part I, Item 1A in our 2023 Annual Report. Therefore, caution should be taken not to place undue reliance on any such forward-looking statements. Much of the information in this report that looks toward future performance is based on various factors and important assumptions about future events that may or may not actually occur. As a result, our operations and financial results in the future could differ materially and substantially from those we have discussed in the forward-looking statements included in this Quarterly Report on Form 10-Q. Any forward-looking statement made in this Quarterly Report on Form 10-Q speaks only as of the date on which it is made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future developments, or otherwise unless required by law.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Our operations expose us to a variety of market risks, including the effects of changes in interest rates as we have both fixed-rate and variable-rate debt. We monitor and manage these financial exposures as an integral part of our overall risk management program. Our policies allow for the use of specified financial instruments for hedging purposes only. Use of derivatives for speculation purposes is prohibited.
There were no material changes in our interest rate risk exposure to that disclosed in our 2023 Annual Report.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of March 31, 2024, our disclosure controls and procedures were effective at a reasonable assurance level in ensuring information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
Changes in Internal Control over Financial Reporting
During the three months ended March 31, 2024, there were no changes in our ICFR identified in our management’s evaluation pursuant to Rules 13a-15(d) and 15d-15(d) of the Exchange Act that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
During 2023, ADT began a multi-year IT transformation project by which we will be migrating much of ADT’s infrastructure to the cloud. The initiative includes certain aspects of our customer relationship management and enterprise resource planning systems and will result in changes to our processes and procedures which, in turn, will result in changes to our internal control over financial reporting. To date, the transformation efforts have not materially affected our internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
See Note 12 “Commitments and Contingencies” to the condensed consolidated financial statements under the heading “Legal Proceedings” included in this Quarterly Report on Form 10-Q for legal proceedings and related matters.
ITEM 1A. RISK FACTORS.
Our significant business risks are described in Part I, Item 1A “Risk Factors” in our 2023 Annual Report and in our other filings with the SEC. The risk factors described in our filings with the SEC and other information may not describe every risk facing the Company. There have been no material changes in our risk factors from those disclosed in our 2023 Annual Report, except as discussed below:
While we are no longer a “controlled company,” we may continue to rely on exemptions from certain NYSE corporate governance requirements during a one-year transition period.
Our Common Stock is listed on the New York Stock Exchange (the “NYSE”). Prior to March 19, 2024, Apollo controlled more than 50% of the combined voting power of the Company with respect to the election of directors, and we were considered a “controlled company” for the purposes of NYSE rules and corporate governance standards. While we were a “controlled company” under NYSE rules, we availed ourselves of applicable “controlled company” exemptions, which exempted us from certain requirements, including the requirements that we have a majority of independent directors on our Board of Directors and that the Compensation Committee of our Board of Directors (the “Compensation Committee”) and Nominating and Corporate Governance Committee of our Board of Directors (the “Nominating and Corporate Governance Committee”) be comprised entirely of independent directors.
On March 19, 2024, following a registered secondary offering of the Company’s Common Stock by certain Apollo affiliates (and the Company’s concurrent repurchase from the underwriters of 15 million shares of Common Stock that were the subject of the offering), including the exercise of the underwriters’ overallotment option which closed on that date, Apollo’s combined voting power with respect to the election of directors fell to 49.5%, and we ceased to be a controlled company as of that date. Under NYSE rules, a company that ceases to be a controlled company must comply with the independent board committee requirements as they relate to the nominating and corporate governance and compensation committees on the following phase-in schedule: (i) at least one independent committee member at the time the company ceases to be a controlled company; (ii) at least a majority of independent committee members within 90 days of the date the company ceases to be a controlled company; and (iii) all independent committee members within one year of the date the company ceases to be a controlled company. Additionally, the NYSE rules provide a 12-month phase-in period from the date a company ceases to be a controlled company to comply with the majority independent board requirement.
As of the date of this report, we have one independent committee member on each of the Nominating and Corporate Governance and the Compensation Committees of the Board, our Audit Committee is comprised entirely of independent directors and we are in compliance with the phase-in requirements described above. Until we are fully subject to these requirements, our stockholders will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the NYSE.
Apollo continues to exert significant influence over us, and its interests may conflict with our interests and the interests of other stockholders.
While we are no longer a “controlled company,” Apollo continues to be able to exert significant influence over us and as of March 31, 2024 had the right to, among others, nominate 50% of our directors pursuant to the amended and restated Stockholders Agreement between ADT and Prime TopCo LP and one of our Co-Investors (as defined therein). The interests of Apollo and its affiliates, including funds affiliated with Apollo, could conflict with or differ from our interests or the interests of our other stockholders. For example, the concentration of ownership held by funds affiliated with Apollo could (i) delay, defer, or prevent a change in control of our company, (ii) impede a merger, takeover, or other business combination which may otherwise be favorable for us or that another stockholder may otherwise view favorably or (iii) cause us to enter into transactions or agreements that are not in the best interests of all stockholders. Additionally, Apollo and its affiliates are in the business of making investments in companies and may, from time to time, acquire and hold interests in or provide advice to businesses that compete directly or indirectly with us, or are suppliers or customers of ours. Apollo and its affiliates may also pursue acquisition opportunities that may be complementary to our business, and as a result, those acquisition opportunities may not be available to us. Any such investment may increase the potential for the conflicts of interest discussed in this risk
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factor. So long as funds affiliated with Apollo continue to directly or indirectly own a significant amount of our equity, even if such amount is less than 50%, Apollo and its affiliates will continue to be able to substantially influence or effectively control our ability to enter into corporate transactions.
In addition, we are party to the Stockholders Agreement with Ultimate Parent and the Co-Investor. The Stockholders Agreement specifies that we will not take certain significant actions without the prior consent of Ultimate Parent, including, among other things, hiring or terminating any Executive Officer of our company, designating any new Executive Officer of our company, entering into certain merger, consolidation or other “change of control” transactions or changing the size of our Board. The Stockholders Agreement also specifies that Ultimate Parent has the right to nominate individuals for election to our Board and that we are, to the fullest extent permitted by applicable law, required to nominate and recommend that each such individual be elected as a director, and the right to designate a member to each committee of our Board. Relatedly, our amended and restated Bylaws (the “Bylaws”) provide that Ultimate Parent and the Co-Investor have the right, subject to certain conditions, to have their representatives appointed to serve on committees of our Board. Recently, stockholders agreements and bylaw provisions of this nature have been challenged on the basis that they conflict with the Delaware General Corporate Law (“DGCL”). Following the recent decision from the Chancery Court of the State of Delaware in West Palm Beach Firefighters’ Pension Fund v. Moelis & Company holding that certain of those types of provisions are invalid under the DGCL, the Board has received two demands (collectively, the “Demands”) from purported stockholders requesting that the Board take all action necessary to amend the Stockholders Agreement and the Bylaws to comply with the DGCL. Absent such changes, the purported shareholder threatens to take further action, including possibly commencing litigation. The Board is evaluating the Demands; the outcome of this matter is uncertain.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Recent Sales of Unregistered Equity Securities
There were no sales of unregistered equity securities during the three months ended March 31, 2024.
Use of Proceeds from Registered Equity Securities
We did not receive any proceeds from sales of registered equity securities during the three months ended March 31, 2024.
Issuer Purchases of Equity Securities
The following table presents repurchases of shares of the Company’s Common Stock during the three months ended March 31, 2024:
Period
Total Number of Shares Purchased
Average Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1)
Maximum Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs
(in thousands)
January 1, 2024 - January 31, 2024
— — — $350,000 
February 1, 2024 - February 29, 2024
— — — $350,000 
March 1, 2024 - March 31, 2024
15,000,000 $6.22 15,000,000 $256,644 
Total
15,000,000 $6.22 15,000,000 $256,644 
_________________
(1)    On January 24, 2024, the Company's Board of Directors announced the Share Repurchase Plan, pursuant to which the Company is authorized to repurchase, through January 29, 2025, up to a maximum aggregate amount of $350 million of shares of the Company's Common Stock under this Share Repurchase Plan. The Company may effect these repurchases pursuant to one or more open market or private transactions, including pursuant to a plan that qualifies for the affirmative defense provided by Rule 10b5‐1 under the Exchange Act, or pursuant to one or more accelerated share repurchase agreements. The Company is not obligated to repurchase any of its shares of Common Stock, and the timing and amount of any repurchases will depend on legal requirements, market conditions, stock price, the availability of the safe harbor provided by Rule 10b-18 under the Exchange Act, alternative uses of capital, and other factors.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
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ITEM 4. MINE SAFETY DISCLOSURES.
None.
ITEM 5. OTHER INFORMATION.
During the three months ended March 31, 2024, none of the Company’s directors or executive officers adopted or terminated any contract, instruction, or written plan for the purchase or sale of Company securities intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
ITEM 6. EXHIBITS.
The exhibits listed on the accompanying Index to Exhibits are filed/furnished or incorporated by reference as part of this Quarterly Report on Form 10-Q.
INDEX TO EXHIBITS
The information required by this Item is set forth on the exhibit index below.
Exhibit NumberIncorporated by Reference
Exhibit DescriptionFormExhibitFiling Date
8-K3.19/17/2020
8-K3.19/18/2023
101XBRL Instant Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
104Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document
_________________________
* Filed herewith.
** Furnished herewith.
+ Management contract or compensatory plan or arrangement.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ADT Inc.
Date:April 25, 2024By:/s/ Jeffrey Likosar
 Name:Jeffrey Likosar
 Title:President, Corporate Development and Transformation, and Chief Financial Officer
(Principal Financial Officer)
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