ADT Inc. (NYSE: ADT), the most trusted brand in smart home and
small business security, today reported results for the third
quarter of 2023.
Financial highlights for the third quarter of
2023 are listed below. Except for cash flow measures, prior period
amounts have been recast to exclude the commercial business,
consistent with continuing operations GAAP presentation following
the sale of the commercial business. Variances are on a
year-over-year basis unless otherwise noted.
- Total revenue of
$1.2 billion with end-of-period recurring monthly revenue
(RMR) up 3% to $350 million
- High customer
retention with gross revenue attrition maintaining 12.9%
- Record revenue
payback of 2.0 years
- GAAP loss from
continuing operations of $21 million, or $(0.02) per diluted share,
up $148 million, which includes $88 million negative impact
from Solar segment goodwill impairment in the current quarter,
compared to $201 million in the prior year quarter
- Adjusted income
from continuing operations of $69 million, or $0.08 per
diluted share, down $3 million
- Adjusted EBITDA
from continuing operations of $583 million, flat compared to
prior year with CSB Adjusted EBITDA of $623 million, up
6%
“ADT’s core security and smart home business
delivered a strong third quarter with recurring monthly revenue
topping $350 million, revenue payback at a record low of 2.0 years
and continued progress in product development. The solar business
continued to perform below our expectations and we’ve undertaken a
substantial restructuring in an effort to drive more positive
results,” said ADT Chairman, President and CEO, Jim DeVries. “In
October, ADT closed on the previously announced divestiture of the
commercial business with all net proceeds allocated to debt
reduction. Additionally, following this transaction and a credit
rating upgrade, ADT refinanced approximately $1.4 billion of debt,
extending the maturity from 2026 to 2030 and reducing borrowing
costs. Closing out 2023, ADT is in a position of strength, focused
on continued value creation, growing cash flow, and optimized
capital allocation.”
Foundation for Growth
- Continued
growth of RMR – The end-of-period RMR balance was a record at $350
million, representing a 3% increase over the prior year period.
Over 85% of total Consumer and Small Business (CSB) revenue was
generated from this durable recurring revenue.
- Maintained near
record customer retention and improved revenue payback – With
strong customer satisfaction, trailing 12-month gross customer
revenue attrition was 12.9%, flat versus the prior year period, and
revenue payback ended the third quarter of 2023 at a record 2.0
years, reflecting a 0.2 year improvement versus the prior
year.
Unlocking Shareholder Value
- Completed sale
of commercial business – On Oct. 2, 2023, the Company completed the
previously announced divestiture of its commercial business for a
purchase price of approximately $1.6 billion.
- Balance sheet
fortification – Following the close of the third quarter, the
Company significantly reduced leverage, improved borrowing costs
and extended debt maturities. Additionally, improvements in both
the balance sheet and operations of the business were recognized in
a corporate rating upgrade by Moody’s.
- Significant debt
reduction – Net proceeds from the commercial divestiture and cash
on hand used or committed to significantly reduce the Company’s
leverage by approximately $2.0 billion in 2023.
- Successful
refinancing – The Company refinanced approximately $1.4 billion of
debt extending the maturity from 2026 to 2030 and reducing
borrowing costs by approximately 35 basis points.
- Credit rating
upgrade – Moody’s upgraded ADT’s corporate credit rating to ‘Ba3’
from ‘B1’ with a stable rating outlook in recognition of the
Company’s debt reduction and improving operating metrics for the
core residential business.
- Solar
restructuring – The Company is taking immediate and decisive action
to streamline the Solar business by focusing on the top performing
markets and rationalizing the overhead and infrastructure of the
business accordingly.
Innovative Offerings
- ADT Home
Security Program for State Farm expands – ADT’s program for State
Farm customers continues to ramp and is currently available in 13
states. In those states, State Farm homeowners can participate in
the program to receive ADT home security products and professional
monitoring at a reduced cost.
- ADT+
professional installation – The Company expects to begin a phased
rollout of the ADT+ app to pro-install customers in the fourth
quarter. With this rollout, our customers will have next generation
hardware and technology through the ADT+ app which will be the
conduit for future innovation and premium differentiation.
Unrivaled Safety
- Alarm Scoring
pilot activated – ADT activated its Alarm Scoring pilot program in
five U.S. cities. This innovative system offers a uniform and
reliable approach for categorizing alarm severity levels. Alarm
scoring enhances the accuracy of assessing potential life or
property threats and gives first responders the most precise and
crucial alarm data for improved emergency responses.
Premium Experience
- Virtual
Assistance Wifi Fix – In addition to the ADT Virtual Assistance
program, the Company rolled out the ADT Wifi Fix app. The tool
allows virtual customer service agents to diagnose and address any
Wifi issues impacting customers’ ADT equipment or other
devices.
Progress on our ESG Journey
- Supporting
Fight Blight Bmore – ADT made a $100,000 donation to charity
partner Fight Blight Bmore, a nonprofit focused on creating safe,
smart and sustainable spaces in West Baltimore to combat the city’s
blight.
- ADT and Miami
Marlins “Rookies” program – As part of our existing partnership,
ADT and the Miami Marlins teamed up to host the first Marlins
Rookies program, a safe place for South Florida youth to stay
active while developing social and emotional competencies.
The Company is revising its financial guidance
for 2023, primarily to account for the recent divestiture of the
commercial business, which is now reported as discontinued
operations, and updated operating performance. Strong CSB
performance is mostly offsetting weaker Solar underperformance,
which has allowed ADT to maintain slightly narrowed guidance within
the prior ranges after adjusting for the divestiture.
Total Revenue, Adjusted EBITDA, and Adjusted EPS
reflect only the Company's continuing operations. Adjusted Free
Cash Flow (including interest rate swaps) and Adjusted Free Cash
Flow include amounts related to the commercial business through the
date of sale, consistent with the presentation on the GAAP
Statement of Cash Flows.
(in millions, except per share data) |
|
Prior Guidance |
Updated Guidance for Continuing Operations |
Total Revenue |
|
$6,300 - $6,500 |
$4,950 - $5,150 |
Adjusted EBITDA |
|
$2,525 - $2,625 |
$2,350 - $2,400 |
Adjusted EPS |
|
$0.30 - $0.40 |
$0.40 - $0.45 |
Adjusted Free Cash Flow
(including interest rate swaps) |
|
$600 - $700 |
$600 - $650 |
Adjusted Free Cash Flow |
|
$525 - $625 |
$525 - $575 |
The Company is not providing forward-looking guidance for U.S. GAAP
financial measures other than Total Revenue or a quantitative
reconciliation to the most directly comparable GAAP measures for
its non-GAAP financial guidance shown above because the GAAP
measures cannot be reliably estimated and the reconciliations
cannot be performed without unreasonable effort due to their
dependence on future uncertainties and adjusting items that the
Company cannot reasonably predict at this time but which may be
material. Please see "Non-GAAP Measures" for additional
information. |
TOTAL COMPANY RESULTS (1)(2) |
|
(in millions,
except revenue payback, attrition, and per share data) |
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
|
GAAP |
Total revenue |
|
$ |
1,237 |
|
|
$ |
1,290 |
|
|
$ |
3,760 |
|
|
$ |
3,851 |
|
Income (loss) from continuing
operations |
|
$ |
(21 |
) |
|
$ |
(169 |
) |
|
$ |
(150 |
) |
|
$ |
(35 |
) |
Net income (loss) |
|
$ |
(86 |
) |
|
$ |
(161 |
) |
|
$ |
(113 |
) |
|
$ |
(18 |
) |
Net cash provided by (used
in): |
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
446 |
|
|
$ |
498 |
|
|
$ |
1,246 |
|
|
$ |
1,321 |
|
Investing activities |
|
$ |
(333 |
) |
|
$ |
(401 |
) |
|
$ |
(988 |
) |
|
$ |
(1,209 |
) |
Financing activities |
|
$ |
(18 |
) |
|
$ |
(93 |
) |
|
$ |
(275 |
) |
|
$ |
(86 |
) |
Income (loss) from continuing
operations per share - basic |
|
$ |
(0.02 |
) |
|
$ |
(0.19 |
) |
|
$ |
(0.16 |
) |
|
$ |
(0.04 |
) |
Income (loss) from continuing
operations per share - diluted |
|
$ |
(0.02 |
) |
|
$ |
(0.19 |
) |
|
$ |
(0.16 |
) |
|
$ |
(0.04 |
) |
|
|
Non-GAAP Measures |
Adjusted EBITDA |
|
$ |
583 |
|
|
$ |
583 |
|
|
$ |
1,766 |
|
|
$ |
1,719 |
|
Adjusted Free Cash Flow |
|
$ |
148 |
|
|
$ |
145 |
|
|
$ |
348 |
|
|
$ |
288 |
|
Adjusted Free Cash Flow
(including interest rate swaps) |
|
$ |
171 |
|
|
$ |
143 |
|
|
$ |
408 |
|
|
$ |
261 |
|
Adjusted Income (Loss) from
Continuing Operations |
|
$ |
69 |
|
|
$ |
72 |
|
|
$ |
213 |
|
|
$ |
99 |
|
Adjusted Diluted Income (Loss)
per share |
|
$ |
0.08 |
|
|
$ |
0.09 |
|
|
$ |
0.25 |
|
|
$ |
0.12 |
|
|
|
Other Measures |
Trailing twelve-month revenue
payback |
|
|
|
|
|
2.0 years |
|
2.2 years |
Trailing twelve-month gross
customer revenue attrition |
|
|
|
|
|
|
12.9 |
% |
|
|
12.9 |
% |
End of period RMR |
|
|
|
|
|
$ |
350 |
|
|
$ |
340 |
|
SEGMENT RESULTS (2) |
CSB |
|
|
Three Months Ended September 30, |
(in millions) |
|
|
2023 |
|
|
|
2022 |
|
|
$ Change |
|
% Change |
Monitoring and related services |
|
$ |
1,053 |
|
|
$ |
1,022 |
|
|
$ |
32 |
|
|
3 |
% |
Security installation,
product, and other |
|
|
126 |
|
|
|
89 |
|
|
|
38 |
|
|
42 |
% |
Total CSB revenue |
|
$ |
1,180 |
|
|
$ |
1,111 |
|
|
$ |
69 |
|
|
6 |
% |
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
623 |
|
|
$ |
590 |
|
|
$ |
34 |
|
|
6 |
% |
Adjusted EBITDA Margin (as a %
of Total CSB Revenue) |
|
|
53 |
% |
|
|
53 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total CSB revenue was $1,180 million for the
third quarter, up 6% versus the prior year. Monitoring and related
services (M&S) revenue increased year-over-year resulting
primarily from higher average pricing. Security installation,
product, and other increased year-over-year resulting primarily
from an increase in the volume of transactions under the
customer-owned equipment ownership model and higher amortization of
deferred subscriber acquisition revenue.
CSB Adjusted EBITDA increased 6% to $623 million
in the third quarter compared to the prior year period. These
improvements were driven by revenue growth, net of associated
costs, and enhanced cost discipline. CSB Adjusted EBITDA in the
quarter includes receipts from Google related to our joint
marketing efforts.
Solar |
|
|
|
Three Months Ended September 30, |
|
(in millions) |
|
|
2023 |
|
|
|
2022 |
|
|
$ Change |
|
% Change |
|
Solar installation, product, and other |
|
$ |
58 |
|
|
$ |
179 |
|
|
$ |
(122 |
) |
|
(68 |
)% |
Total Solar revenue |
|
$ |
58 |
|
|
$ |
179 |
|
|
$ |
(122 |
) |
|
(68 |
)% |
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
(41 |
) |
|
$ |
(6 |
) |
|
$ |
(34 |
) |
|
N/M |
|
Adjusted EBITDA Margin (as a %
of Total Solar Revenue) |
|
(71 |
)% |
|
(4 |
)% |
|
|
|
|
|
Note: M&S revenue is not
applicable to the Solar segment. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Solar revenue for the third quarter was
$58 million, down 68% versus the third quarter of last year. This
performance was driven by lower installations and weaker sales
performance.
Solar Adjusted EBITDA was a $41 million loss for
the third quarter. Adjusted EBITDA was negatively impacted by the
lower revenue discussed above.
The Company announced today it is taking
decisive action to streamline the Solar business to focus on the
top performing markets and rationalize the overhead and
infrastructure of the business accordingly. As part of this plan,
we are taking immediate steps to restructure our solar footprint,
reducing from 38 to 16 branches. The remaining branches represented
approximately 70% of Solar revenue in the third quarter. These
actions are expected to remove more than $80 million of annualized
costs from the Solar business.
As a result of continuing challenges in our
Solar business and continued deterioration of macroeconomic and
industry conditions, the Company recognized a non-cash goodwill
impairment charge of $88 million during the third quarter.
Following the impairment, the balance of goodwill in the Solar
reporting unit is zero. This goodwill impairment charge has been
excluded from Adjusted EBITDA.
BALANCE SHEET, CASH, AND LIQUIDITY |
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
(in millions) |
|
|
2023 |
|
|
|
2022 |
|
|
$ Change |
|
% Change |
|
|
2023 |
|
|
|
2022 |
|
|
$ Change |
|
% Change |
Net cash provided by (used in) operating activities |
|
$ |
446 |
|
|
$ |
498 |
|
|
$ |
(52 |
) |
|
(10 |
)% |
|
$ |
1,246 |
|
|
$ |
1,321 |
|
|
$ |
(75 |
) |
|
(6 |
)% |
Adjusted Free Cash Flow |
|
$ |
148 |
|
|
$ |
145 |
|
|
$ |
3 |
|
|
2 |
% |
|
$ |
348 |
|
|
$ |
288 |
|
|
$ |
60 |
|
|
21 |
% |
Adjusted Free Cash Flow
(including interest rate swaps) |
|
$ |
171 |
|
|
$ |
143 |
|
|
$ |
28 |
|
|
20 |
% |
|
$ |
408 |
|
|
$ |
261 |
|
|
$ |
146 |
|
|
56 |
% |
Net cash provided by operating activities during
the third quarter of 2023 was $446 million, down $52 million or 10%
versus the third quarter of last year, and Adjusted Free Cash Flow
(including the benefit of interest rate swaps) increased by $28
million versus the prior year period. During the third quarter, the
Company had improved CSB operating profitability and lower net
subscriber investments versus the prior year period. These
improvements, which benefited from execution on our cost reduction
initiatives and receipts from Google related to our joint marketing
efforts, were partially offset by the performance of our Solar
business.
The Company returned $32 million to shareholders
in dividends during the third quarter of 2023.
On Oct. 5, 2023, the Company repaid $1,318
million of First Lien Senior Secured Term Loan B due 2026 using
proceeds from the divestiture of its commercial business. On Oct.
18, 2023, the Company provided notice to redeem in December 2023
$500 million of First Lien Senior Secured Notes due 2024 using the
$200 million remaining net proceeds from the commercial divestiture
and cash on hand.
On Oct. 13, 2023 the Company amended and
extended the remaining $1,391 million of First Lien Senior Secured
Term Loan B due 2026 with $1,375 million of First Lien Senior
Secured Term Loan B due 2030 at approximately 35 basis points in
lower borrowing expense, and repaid approximately $16 million from
cash on hand.
Effective Nov. 2, 2023, the Company’s Board of
Directors declared a cash dividend of $0.035 per share to holders
of the Company’s Common Stock and Class B Common Stock of record as
of Dec. 14, 2023. This dividend will be paid on Jan. 9, 2024.
_____________________
(1 |
) |
All variances are year-over-year unless otherwise noted. Adjusted
EBITDA, Adjusted EBITDA Margin, Adjusted Free Cash Flow, Adjusted
Free Cash Flow (including interest rate swaps), Adjusted Income
(Loss), Adjusted Diluted Income (Loss) per share (or, Adjusted
EPS), and Net Leverage Ratio are non-GAAP measures. Refer to the
“Non-GAAP Measures” section for the definitions of these terms and
reconciliations to the most comparable GAAP measures. The operating
metrics such as Gross Customer Revenue Attrition, Unit Count, RMR,
Gross RMR Additions, and Revenue Payback are approximated as there
may be variations to reported results in each period due to certain
adjustments the Company might make in connection with the
integration over several periods of acquired companies that
calculated these metrics differently, or otherwise, including
periodic reassessments and refinements in the ordinary course of
business. These refinements, for example, may include changes due
to systems conversion or historical methodology differences in
legacy systems. Beginning in the third quarter of 2023, results of
the commercial business are presented as discontinued operations.
Except for cash flow measures, and unless otherwise noted, amounts
herein have been recast to reflect the results of the Company’s
continuing operations. |
(2 |
) |
Amounts may not sum due to rounding. |
Conference Call
As previously announced, management will host a
conference call at 10 a.m. ET today to discuss the Company’s third
quarter 2023 results and lead a question-and-answer session.
Participants may listen to a live webcast through the investor
relations website at investor.adt.com. A replay of the webcast will
be available on the website within 24 hours of the live event.
Alternatively, participants may listen to the
live call by dialing 1-833-470-1428 (domestic) or 1-646-904-5544
(international), and providing the access code 664545. An audio
replay will be available for two weeks following the call, and can
be accessed by dialing 1-866-813-9403 (domestic) or 1-929-458-6194
(international), and providing the access code 471093.
A slide presentation highlighting the Company’s
results will also be available on the Investor Relations section of
the Company’s website. From time to time, the Company may use its
website as a channel of distribution of material Company
information. Financial and other material information regarding the
Company is routinely posted on and accessible at
investor.adt.com.
About ADT Inc.
ADT provides safe, smart and sustainable
solutions for people, homes and small businesses. Through
innovative offerings, unrivaled safety and a premium customer
experience, all delivered by one of the largest networks of smart
home security and rooftop solar professionals in the U.S., we
empower people to protect and connect to what matters most. For
more information, visit www.adt.com.
Investor
Relations: |
Media
Relations: |
investorrelations@adt.comTel:
888-238-8525 |
media@adt.com |
Forward-Looking Statements
ADT has made statements in this press release
that are forward-looking and therefore subject to risks and
uncertainties, including those described below. All statements,
other than statements of historical fact, included in this document
are, or could be, “forward-looking statements” within the meaning
of the Private Securities Litigation Reform Act of 1995 and the
applicable rules and regulations of the Securities and Exchange
Commission (the “SEC”) and are made in reliance on the safe harbor
protections provided thereunder. These forward-looking statements
relate to, among other things, planned ADT Solar restructuring
activities; the commercial transaction between ADT and GTCR, the
expected timetable for realizing expected benefits and synergies of
the commercial transaction; 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; the Company’s acquisition of ADT
Solar and its anticipated impact on the Company’s business and
financial condition, including the subsequent announcement of
planned ADT Solar restructuring activities; business prospects;
outcomes of regulatory proceedings; market conditions; the
Company’s ability to successfully respond to the challenges posed
by the COVID-19 Pandemic; the Company’s 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
the Company’s 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. Without limiting
the generality of the preceding sentences, any time the Company
uses 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, the Company intends 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. These forward-looking statements are based on management’s
current beliefs and assumptions and on information currently
available to management. ADT cautions that these statements are
subject to risks and uncertainties, many of which are outside of
ADT’s control, and could cause future events or results to be
materially different from those stated or implied in this document,
including among others, factors relating to uncertainties as to any
difficulties with respect to planned ADT Solar restructuring
activities, including expenses associated with the separation of
certain Solar branches and personnel; the effect of the commercial
transaction and of the announcement of the planned ADT Solar
restructuring activities on ADT’s ability to retain and hire key
personnel and to maintain relationships with customers, suppliers
and other business partners; risks related to the commercial
transaction and planned ADT Solar restructuring activities and the
possible diversion of management’s attention from ADT’s core CSB
business operations; uncertainties as to ADT’s ability and the
amount of time necessary to realize the expected benefits of the
commercial transaction and planned ADT solar restructuring
activities; the achievement of potential benefits of the equity
investment by and long-term partnership with State Farm, including
as a result of restrictions on, or required prior regulatory
approval of, various actions by regulated insurers; risks and
uncertainties related to ADT's ability to successfully generate
profitable revenue from new and existing partnerships; ADT's
ability to successfully commercialize any joint products with State
Farm or with Google; the Company's ability to successfully utilize
the incremental funding committed by State Farm or Google;
continued risks and uncertainties related to the Company’s ability
to successfully integrate and operate the ADT Solar business,
including the planned ADT Solar restructuring activities risks
related to the various financing arrangements, including third
party owned arrangements, that the Company facilitates for some ADT
Solar customers; the Company’s ability to continuously and
successfully commercialize innovative offerings; the Company’s
ability to successfully implement an Environmental, Social, and
Governance program across the Company; risks related to the
restatement of our consolidated financial statements included in
our amended Annual Report on Form 10-K/A for the year ended
December 31, 2022 (the “Amended Annual Report”) and in our amended
quarterly report on Form 10-Q/A for the quarter ended March 31,
2023; any litigation or investigation related to such restatements;
the Company’s ability to maintain effective internal control over
financial reporting (“ICFR”) and disclosure controls and procedures
(“DCPs”) including its ability to remediate any existing material
weakness in ICFR and the timing of any such remediation, as well as
ability to reestablish effective DCPs at a reasonable assurance
level; and risks that are described in the Company’s Amended Annual
Report, Quarterly Reports on Form 10-Q, Current Reports on Form
8-K, and other filings with the SEC, including the sections titled
“Risk Factors” and “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” contained therein.
Any forward-looking statement made in this press release speaks
only as of the date on which it is made. ADT undertakes no
obligation to publicly update or revise any forward-looking
statement, whether as a result of new information, future
developments, or otherwise.
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
|
2023 |
|
|
|
2022 |
|
|
$ Change |
|
% Change |
|
|
2023 |
|
|
|
2022 |
|
|
$ Change |
|
% Change |
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monitoring and related services |
|
$ |
1,053 |
|
|
$ |
1,022 |
|
|
$ |
32 |
|
|
3 |
% |
|
$ |
3,125 |
|
|
$ |
3,029 |
|
|
$ |
96 |
|
|
3 |
% |
Security installation, product, and other |
|
|
126 |
|
|
|
89 |
|
|
|
38 |
|
|
42 |
% |
|
|
355 |
|
|
|
236 |
|
|
|
120 |
|
|
51 |
% |
Solar installation, product, and other |
|
|
58 |
|
|
|
179 |
|
|
|
(122 |
) |
|
(68 |
)% |
|
|
280 |
|
|
|
586 |
|
|
|
(306 |
) |
|
(52 |
)% |
Total revenue |
|
|
1,237 |
|
|
|
1,290 |
|
|
|
(52 |
) |
|
(4 |
)% |
|
|
3,760 |
|
|
|
3,851 |
|
|
|
(91 |
) |
|
(2 |
)% |
Cost of revenue (exclusive of depreciation and
amortization shown separately below): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monitoring and related services |
|
|
149 |
|
|
|
137 |
|
|
|
11 |
|
|
8 |
% |
|
|
453 |
|
|
|
446 |
|
|
|
7 |
|
|
2 |
% |
Security installation, product, and other |
|
|
39 |
|
|
|
27 |
|
|
|
12 |
|
|
43 |
% |
|
|
114 |
|
|
|
67 |
|
|
|
47 |
|
|
70 |
% |
Solar installation, product, and other |
|
|
49 |
|
|
|
114 |
|
|
|
(65 |
) |
|
(57 |
)% |
|
|
213 |
|
|
|
383 |
|
|
|
(170 |
) |
|
(44 |
)% |
Total cost of revenue |
|
|
237 |
|
|
|
279 |
|
|
|
(42 |
) |
|
(15 |
)% |
|
|
779 |
|
|
|
895 |
|
|
|
(116 |
) |
|
(13 |
)% |
Selling,
general, and administrative expenses |
|
|
396 |
|
|
|
415 |
|
|
|
(20 |
) |
|
(5 |
)% |
|
|
1,159 |
|
|
|
1,254 |
|
|
|
(95 |
) |
|
(8 |
)% |
Depreciation and intangible asset amortization |
|
|
333 |
|
|
|
387 |
|
|
|
(54 |
) |
|
(14 |
)% |
|
|
1,021 |
|
|
|
1,224 |
|
|
|
(203 |
) |
|
(17 |
)% |
Merger,
restructuring, integration, and other |
|
|
16 |
|
|
|
5 |
|
|
|
12 |
|
|
N/M |
|
|
42 |
|
|
|
1 |
|
|
|
41 |
|
|
N/M |
Goodwill
impairment |
|
|
88 |
|
|
|
201 |
|
|
|
(113 |
) |
|
(56 |
)% |
|
|
511 |
|
|
|
201 |
|
|
|
310 |
|
|
N/M |
Operating income (loss) |
|
|
167 |
|
|
|
3 |
|
|
|
165 |
|
|
N/M |
|
|
247 |
|
|
|
276 |
|
|
|
(28 |
) |
|
(10 |
)% |
Interest
expense, net |
|
|
(147 |
) |
|
|
(30 |
) |
|
|
(117 |
) |
|
N/M |
|
|
(402 |
) |
|
|
(117 |
) |
|
|
(285 |
) |
|
N/M |
Other
income (expense) |
|
|
1 |
|
|
|
(156 |
) |
|
|
157 |
|
|
N/M |
|
|
— |
|
|
|
(153 |
) |
|
|
153 |
|
|
N/M |
Income (loss) from continuing operations before income
taxes and equity in net earnings (losses) of equity method
investee |
|
|
21 |
|
|
|
(183 |
) |
|
|
204 |
|
|
N/M |
|
|
(155 |
) |
|
|
5 |
|
|
|
(160 |
) |
|
N/M |
Income
tax benefit (expense) |
|
|
(39 |
) |
|
|
16 |
|
|
|
(55 |
) |
|
N/M |
|
|
12 |
|
|
|
(38 |
) |
|
|
50 |
|
|
N/M |
Income (loss) from continuing operations before equity in
net earnings (losses) of equity method investee |
|
|
(18 |
) |
|
|
(168 |
) |
|
|
150 |
|
|
(89 |
)% |
|
|
(143 |
) |
|
|
(33 |
) |
|
|
(110 |
) |
|
N/M |
Equity
in net earnings (losses) of equity method investee |
|
|
(3 |
) |
|
|
(2 |
) |
|
|
(1 |
) |
|
69 |
% |
|
|
(7 |
) |
|
|
(3 |
) |
|
|
(5 |
) |
|
N/M |
Income (loss) from continuing operations |
|
|
(21 |
) |
|
|
(169 |
) |
|
|
148 |
|
|
(88 |
)% |
|
|
(150 |
) |
|
|
(35 |
) |
|
|
(114 |
) |
|
324 |
% |
Income
(loss) from discontinued operations, net of tax |
|
|
(66 |
) |
|
|
8 |
|
|
|
(73 |
) |
|
N/M |
|
|
37 |
|
|
|
17 |
|
|
|
20 |
|
|
114 |
% |
Net income (loss) |
|
$ |
(86 |
) |
|
$ |
(161 |
) |
|
$ |
75 |
|
|
(47 |
)% |
|
$ |
(113 |
) |
|
$ |
(18 |
) |
|
$ |
(95 |
) |
|
N/M |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations per share - basic |
|
$ |
(0.02 |
) |
|
$ |
(0.19 |
) |
|
|
|
|
|
$ |
(0.16 |
) |
|
$ |
(0.04 |
) |
|
|
|
|
Income (loss) from continuing operations per share - diluted |
|
$ |
(0.02 |
) |
|
$ |
(0.19 |
) |
|
|
|
|
|
$ |
(0.16 |
) |
|
$ |
(0.04 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share - basic |
|
$ |
(0.09 |
) |
|
$ |
(0.18 |
) |
|
|
|
|
|
$ |
(0.12 |
) |
|
$ |
(0.02 |
) |
|
|
|
|
Net income (loss) per share - diluted |
|
$ |
(0.09 |
) |
|
$ |
(0.18 |
) |
|
|
|
|
|
$ |
(0.12 |
) |
|
$ |
(0.02 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding - basic |
|
|
857 |
|
|
|
850 |
|
|
|
|
|
|
|
856 |
|
|
|
847 |
|
|
|
|
|
Weighted-average shares outstanding - diluted |
|
|
857 |
|
|
|
850 |
|
|
|
|
|
|
|
856 |
|
|
|
847 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class B Common Stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations per share - basic |
|
$ |
(0.02 |
) |
|
$ |
(0.19 |
) |
|
|
|
|
|
$ |
(0.16 |
) |
|
$ |
(0.04 |
) |
|
|
|
|
Income (loss) from continuing operations per share - diluted |
|
$ |
(0.02 |
) |
|
$ |
(0.19 |
) |
|
|
|
|
|
$ |
(0.16 |
) |
|
$ |
(0.04 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share - basic |
|
$ |
(0.09 |
) |
|
$ |
(0.18 |
) |
|
|
|
|
|
$ |
(0.12 |
) |
|
$ |
(0.02 |
) |
|
|
|
|
Net income (loss) per share - diluted |
|
$ |
(0.09 |
) |
|
$ |
(0.18 |
) |
|
|
|
|
|
$ |
(0.12 |
) |
|
$ |
(0.02 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding - basic |
|
|
55 |
|
|
|
55 |
|
|
|
|
|
|
|
55 |
|
|
|
55 |
|
|
|
|
|
Weighted-average shares outstanding - diluted |
|
|
55 |
|
|
|
55 |
|
|
|
|
|
|
|
55 |
|
|
|
55 |
|
|
|
|
|
Note: amounts may not sum due to rounding
|
September 30, 2023 |
|
December 31, 2022 |
Assets |
|
|
|
Current
assets: |
|
|
|
Cash and cash equivalents |
$ |
239 |
|
|
$ |
257 |
|
Restricted cash and restricted cash equivalents |
|
117 |
|
|
|
116 |
|
Accounts receivable, net |
|
384 |
|
|
|
335 |
|
Inventories, net |
|
199 |
|
|
|
225 |
|
Work-in-progress |
|
7 |
|
|
|
12 |
|
Prepaid expenses and other current assets |
|
238 |
|
|
|
307 |
|
Current assets held for sale |
|
450 |
|
|
|
470 |
|
Total current assets |
|
1,635 |
|
|
|
1,722 |
|
Property
and equipment, net |
|
276 |
|
|
|
306 |
|
Subscriber system assets, net |
|
2,991 |
|
|
|
2,919 |
|
Intangible assets, net |
|
4,823 |
|
|
|
4,927 |
|
Goodwill |
|
4,904 |
|
|
|
5,430 |
|
Deferred
subscriber acquisition costs, net |
|
1,135 |
|
|
|
991 |
|
Other
assets |
|
771 |
|
|
|
641 |
|
Noncurrent assets held for sale |
|
895 |
|
|
|
886 |
|
Total assets |
$ |
17,431 |
|
|
$ |
17,821 |
|
|
|
|
|
Liabilities and stockholders' equity |
|
|
|
Current
liabilities: |
|
|
|
Current maturities of long-term debt |
$ |
835 |
|
|
$ |
858 |
|
Accounts payable |
|
276 |
|
|
|
418 |
|
Deferred revenue |
|
272 |
|
|
|
310 |
|
Accrued expenses and other current liabilities |
|
582 |
|
|
|
777 |
|
Current liabilities held for sale |
|
314 |
|
|
|
299 |
|
Total current liabilities |
|
2,279 |
|
|
|
2,661 |
|
Long-term debt |
|
8,832 |
|
|
|
8,947 |
|
Deferred
subscriber acquisition revenue |
|
1,849 |
|
|
|
1,581 |
|
Deferred
tax liabilities |
|
909 |
|
|
|
893 |
|
Other
liabilities |
|
216 |
|
|
|
240 |
|
Noncurrent liabilities held for sale |
|
107 |
|
|
|
106 |
|
Total liabilities |
|
14,192 |
|
|
|
14,428 |
|
|
|
|
|
Total stockholders' equity |
|
3,239 |
|
|
|
3,393 |
|
Total liabilities and stockholders' equity |
$ |
17,431 |
|
|
$ |
17,821 |
|
Note: amounts may not sum due to rounding
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
Cash flows from
operating activities: |
|
|
|
|
|
|
|
Net income (loss) |
$ |
(86 |
) |
|
$ |
(161 |
) |
|
$ |
(113 |
) |
|
$ |
(18 |
) |
Adjustments to reconcile net
income (loss) to net cash provided by (used in) operating
activities: |
|
|
|
|
|
|
|
Depreciation and intangible asset amortization |
|
330 |
|
|
|
406 |
|
|
|
1,059 |
|
|
|
1,282 |
|
Amortization of deferred subscriber acquisition costs |
|
51 |
|
|
|
42 |
|
|
|
146 |
|
|
|
118 |
|
Amortization of deferred subscriber acquisition revenue |
|
(80 |
) |
|
|
(64 |
) |
|
|
(228 |
) |
|
|
(176 |
) |
Share-based compensation expense |
|
16 |
|
|
|
17 |
|
|
|
43 |
|
|
|
50 |
|
Deferred income taxes |
|
138 |
|
|
|
(14 |
) |
|
|
7 |
|
|
|
36 |
|
Provision for losses on receivables and inventory |
|
37 |
|
|
|
23 |
|
|
|
104 |
|
|
|
68 |
|
Goodwill, intangible, and other asset impairments |
|
94 |
|
|
|
201 |
|
|
|
522 |
|
|
|
201 |
|
Unrealized (gain) loss on interest rate swap contracts |
|
(16 |
) |
|
|
(108 |
) |
|
|
(38 |
) |
|
|
(313 |
) |
Change in fair value of other financial instruments |
|
— |
|
|
|
158 |
|
|
|
— |
|
|
|
158 |
|
Other non-cash items, net |
|
50 |
|
|
|
26 |
|
|
|
103 |
|
|
|
104 |
|
Changes in operating assets
and liabilities, net of effects of acquisitions and
divestitures: |
|
|
|
|
|
|
|
Deferred subscriber acquisition costs |
|
(110 |
) |
|
|
(109 |
) |
|
|
(295 |
) |
|
|
(304 |
) |
Deferred subscriber acquisition revenue |
|
73 |
|
|
|
89 |
|
|
|
222 |
|
|
|
256 |
|
Other, net |
|
(50 |
) |
|
|
(7 |
) |
|
|
(285 |
) |
|
|
(141 |
) |
Net cash provided by (used in) operating activities |
|
446 |
|
|
|
498 |
|
|
|
1,246 |
|
|
|
1,321 |
|
|
|
|
|
|
|
|
|
Cash flows from
investing activities: |
|
|
|
|
|
|
|
Dealer generated customer
accounts and bulk account purchases |
|
(133 |
) |
|
|
(159 |
) |
|
|
(385 |
) |
|
|
(500 |
) |
Subscriber system asset
expenditures |
|
(161 |
) |
|
|
(194 |
) |
|
|
(481 |
) |
|
|
(573 |
) |
Purchases of property and
equipment |
|
(41 |
) |
|
|
(48 |
) |
|
|
(131 |
) |
|
|
(136 |
) |
Acquisition of businesses, net
of cash acquired |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(13 |
) |
Proceeds from sale of
business, net of cash sold |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
27 |
|
Other investing, net |
|
2 |
|
|
|
— |
|
|
|
9 |
|
|
|
(14 |
) |
Net cash provided by (used in) investing activities |
|
(333 |
) |
|
|
(401 |
) |
|
|
(988 |
) |
|
|
(1,209 |
) |
|
|
|
|
|
|
|
|
Cash flows from
financing activities: |
|
|
|
|
|
|
|
Proceeds from long-term
borrowings |
|
— |
|
|
|
100 |
|
|
|
650 |
|
|
|
480 |
|
Proceeds from receivables
facility |
|
72 |
|
|
|
73 |
|
|
|
212 |
|
|
|
212 |
|
Proceeds (payments) from
interest rate swaps |
|
23 |
|
|
|
(2 |
) |
|
|
59 |
|
|
|
(27 |
) |
Repayment of long-term
borrowings, including call premiums |
|
(15 |
) |
|
|
(187 |
) |
|
|
(889 |
) |
|
|
(528 |
) |
Repayment of receivables
facility |
|
(52 |
) |
|
|
(35 |
) |
|
|
(145 |
) |
|
|
(81 |
) |
Dividends on common stock |
|
(32 |
) |
|
|
(32 |
) |
|
|
(96 |
) |
|
|
(95 |
) |
Payments on finance
leases |
|
(11 |
) |
|
|
(12 |
) |
|
|
(32 |
) |
|
|
(34 |
) |
Other financing, net |
|
(2 |
) |
|
|
2 |
|
|
|
(34 |
) |
|
|
(13 |
) |
Net cash provided by (used in) financing activities |
|
(18 |
) |
|
|
(93 |
) |
|
|
(275 |
) |
|
|
(86 |
) |
|
|
|
|
|
|
|
|
Cash and cash
equivalents and restricted cash and restricted cash
equivalents: |
|
|
|
|
|
|
|
Net increase (decrease) |
|
95 |
|
|
|
4 |
|
|
|
(18 |
) |
|
|
27 |
|
Beginning balance |
|
261 |
|
|
|
56 |
|
|
|
374 |
|
|
|
33 |
|
Ending balance |
$ |
356 |
|
|
$ |
60 |
|
|
$ |
356 |
|
|
$ |
60 |
|
Note: amounts may not sum due to rounding
Revenue by Segment
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
(in millions) |
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
CSB: |
|
|
|
|
|
|
|
|
Monitoring and related services |
|
$ |
1,053 |
|
|
$ |
1,022 |
|
|
$ |
3,125 |
|
|
$ |
3,029 |
|
Security installation, product, and other |
|
|
126 |
|
|
|
89 |
|
|
|
355 |
|
|
|
236 |
|
Total CSB |
|
$ |
1,180 |
|
|
$ |
1,111 |
|
|
$ |
3,480 |
|
|
$ |
3,265 |
|
|
|
|
|
|
|
|
|
|
Solar: |
|
|
|
|
|
|
|
|
Solar installation, product, and other |
|
$ |
58 |
|
|
$ |
179 |
|
|
$ |
280 |
|
|
$ |
586 |
|
Total Solar |
|
$ |
58 |
|
|
$ |
179 |
|
|
$ |
280 |
|
|
$ |
586 |
|
|
|
|
|
|
|
|
|
|
Total Revenue |
|
$ |
1,237 |
|
|
$ |
1,290 |
|
|
$ |
3,760 |
|
|
$ |
3,851 |
|
|
Adjusted EBITDA by Segment
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
(in millions) |
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
CSB |
|
$ |
623 |
|
|
$ |
590 |
|
|
$ |
1,854 |
|
|
$ |
1,724 |
|
Solar |
|
|
(41 |
) |
|
|
(6 |
) |
|
|
(89 |
) |
|
|
(4 |
) |
Total |
|
$ |
583 |
|
|
$ |
583 |
|
|
$ |
1,766 |
|
|
$ |
1,719 |
|
|
Adjusted EBITDA Margin by
Segment
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
CSB (as a % of Total CSB Revenue) |
|
53 |
% |
|
53 |
% |
|
53 |
% |
|
53 |
% |
Solar (as a % of Total Solar Revenue) |
|
(71 |
)% |
|
(4 |
)% |
|
(32 |
)% |
|
(1 |
)% |
Note: amounts may not sum due to rounding
ADT sometimes uses information (“non-GAAP
financial measures”) that is derived from the consolidated
financial statements, but that is not presented in accordance with
accounting principles generally accepted in the U.S. (“GAAP”).
Under SEC rules, non-GAAP financial measures may be considered in
addition to results prepared in accordance with GAAP, but should
not be considered a substitute for or superior to GAAP results.
The following information includes definitions
of our non-GAAP financial measures used in this release, reasons
our management believes these measures are useful to investors
regarding our financial condition and results of operations,
additional purposes, if any, for which our management uses the
non-GAAP financial measures, and limitations to using these
non-GAAP financial measures, as well as reconciliations of these
non-GAAP financial measures to the most comparable GAAP measures.
Each non-GAAP financial measure is presented following the
corresponding GAAP measure so as not to imply that more emphasis
should be placed on the non-GAAP measure. The limitations of
non-GAAP financial measures are best addressed by considering these
measures in conjunction with the appropriate GAAP measures. In
addition, computations of these non-GAAP measures may not be
comparable to other similarly titled measures reported by other
companies.
With regard to our financial guidance for 2023,
the Company is not providing a quantitative reconciliation for
forward-looking Adjusted EBITDA and Adjusted EPS to income (loss)
from continuing operations, and Adjusted Free Cash Flow and
Adjusted Free Cash Flow (including interest rate swaps) to net cash
provided by operating activities, which are the most directly
comparable respective GAAP measures. These GAAP measures cannot be
reliably predicted or estimated without unreasonable effort due to
their dependence on future uncertainties, such as the adjustment of
items used in the following reconciliations. Additionally,
information about other adjusting items that is currently not
available to the Company could have a potentially unpredictable and
potentially significant impact on its future GAAP financial
results.
Beginning in the third quarter of 2023, the
Company is presenting the results of the commercial business as a
discontinued operation (with the exception of certain costs
previously reflected in the Commercial segment that do not qualify
to be presented as discontinued operations and are now reflected in
the CSB segment). Except for Free Cash Flow, Adjusted Free Cash
Flow, and Adjusted Free Cash Flow (including interest rate swaps)
which, consistent with the presentation of the GAAP measure net
cash provided by (used in) operating activities, continue to
reflect the results of both continuing and discontinued operations
(through the date of sale), and unless otherwise noted, non-GAAP
measures herein have been recast for prior periods to reflect the
results of only the Company’s continuing operations and to exclude
the results of discontinued operations related to the commercial
business to conform with the current period presentation.
Adjusted EBITDA from Continuing
Operations (“Adjusted EBITDA”) and Adjusted EBITDA Margin from
Continuing Operations (“Adjusted EBITDA Margin”)
We believe the presentation of our non-GAAP
measure, Adjusted EBITDA, provides useful information to investors
about our operating profitability adjusted for certain non-cash
items, non-routine items that we do not expect to continue at the
same level in the future, as well as other items that are not core
to our operations. Further, we believe this provides a meaningful
measure of operating profitability because we use it for evaluating
our business performance, making budgeting decisions, and comparing
our performance against that of other peer companies using similar
measures.
We define Adjusted EBITDA as income or 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 such as separation costs; (vii) losses
on extinguishment of debt; (viii) radio conversion costs net of any
related incremental revenue earned; (ix) adjustments related to
acquisitions, such as contingent consideration and purchase
accounting adjustments, or dispositions; (x) impairment charges;
and (xi) other income/gain or expense/loss items such as changes in
fair value of certain financial instruments or financing and
consent fees.
There are material limitations to using Adjusted
EBITDA as it does not reflect certain significant items which
directly affect our income or loss from continuing operations (the
most comparable GAAP measure).
The discussion above is also applicable to
Adjusted EBITDA margin, which is calculated as Adjusted EBITDA as a
percentage of total revenue.
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
(in millions) |
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
Income (loss) from
continuing operations |
$ |
(21 |
) |
|
$ |
(169 |
) |
|
$ |
(150 |
) |
|
$ |
(35 |
) |
Interest expense, net |
|
147 |
|
|
|
30 |
|
|
|
402 |
|
|
|
117 |
|
Income tax expense
(benefit) |
|
39 |
|
|
|
(16 |
) |
|
|
(12 |
) |
|
|
38 |
|
Depreciation and intangible
asset amortization |
|
333 |
|
|
|
387 |
|
|
|
1,021 |
|
|
|
1,224 |
|
Amortization of deferred
subscriber acquisition costs |
|
48 |
|
|
|
40 |
|
|
|
138 |
|
|
|
112 |
|
Amortization of deferred
subscriber acquisition revenue |
|
(77 |
) |
|
|
(62 |
) |
|
|
(221 |
) |
|
|
(169 |
) |
Share-based compensation
expense |
|
10 |
|
|
|
14 |
|
|
|
31 |
|
|
|
40 |
|
Merger, restructuring,
integration and other(1) |
|
16 |
|
|
|
5 |
|
|
|
42 |
|
|
|
1 |
|
Goodwill impairment(2) |
|
88 |
|
|
|
201 |
|
|
|
511 |
|
|
|
201 |
|
Change in fair value of other
financial instruments(3) |
|
— |
|
|
|
158 |
|
|
|
— |
|
|
|
158 |
|
Non-cash acquisition-related
adjustments and other, net(4) |
|
(1 |
) |
|
|
(5 |
) |
|
|
2 |
|
|
|
33 |
|
Adjusted EBITDA |
$ |
583 |
|
|
$ |
583 |
|
|
$ |
1,766 |
|
|
$ |
1,719 |
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations to total revenue ratio |
(2 |
)% |
|
(13 |
)% |
|
(4 |
)% |
|
(1 |
)% |
Adjusted EBITDA Margin (as
percentage of Total Revenue) |
|
47 |
% |
|
|
45 |
% |
|
|
47 |
% |
|
|
45 |
% |
Note: amounts may not sum due to
rounding_______________________
(1) During 2023, includes 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.(3) During 2022, represents the change in fair value of a
contingent forward purchase contract related to the State Farm
transaction during 2022.(4) During 2022, primarily represents
amortization of the customer backlog intangible asset related to
the ADT Solar Acquisition, which was fully amortized as of March
2022 partially offset by gain on sale of a business of $10 million
during Q2 2022.
Free Cash Flow, Adjusted Free Cash Flow,
and Adjusted Free Cash Flow including interest rate
swaps
We define Free Cash Flow as cash flows from
operating activities less cash outlays related to capital
expenditures. We define capital expenditures to include accounts
purchased through our network of authorized dealers or third
parties outside of our authorized dealer network, subscriber system
asset expenditures, and purchases of property and equipment. These
items are subtracted from cash flows from operating activities
because they represent long-term investments that are required for
normal business activities.
We define Adjusted Free Cash Flow as Free Cash
Flow adjusted for net cash flows related to (i) net proceeds from
our consumer receivables facility; (ii) financing and consent fees;
(iii) restructuring and integration; (iv) integration-related
capital expenditures; (v) radio conversion costs net of any related
incremental revenue collected; and (vi) other payments or receipts
that may mask our operating results or business trends. Adjusted
Free Cash Flow including interest rate swaps reflects Adjusted Free
Cash Flow plus net cash settlements on interest rate swaps
presented within net cash provided by (used in) financing
activities.
We believe the presentations of these non-GAAP
measures are appropriate to provide investors with useful
information about our ability to repay debt, make other
investments, and pay dividends. We believe the presentation of
Adjusted Free Cash Flow is also a useful measure of our cash flow
attributable to our normal business activities, inclusive of the
net cash flows associated with the acquisition of subscribers, as
well as our ability to repay other debt, make other investments,
and pay dividends. Further, Adjusted Free Cash Flow including
interest rate swaps is a useful measure of Adjusted Free Cash Flow
inclusive of all cash interest.
There are material limitations to using these
non-GAAP measures. These non-GAAP measures adjust for cash items
that are ultimately within management’s discretion to direct, and
therefore, may imply that there is less or more cash available than
the most comparable GAAP measure. These non-GAAP measures are not
intended to represent residual cash flow for discretionary
expenditures since debt repayment requirements and other
non-discretionary expenditures are not deducted.
The non-GAAP measures in the table below include
cash flows associated with both continuing and discontinued
operations consistent with the applicable GAAP presentation on the
Statement of Cash Flows.
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
(in millions) |
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
Net cash provided by
(used in): |
|
|
|
|
|
|
|
Operating activities |
$ |
446 |
|
|
$ |
498 |
|
|
$ |
1,246 |
|
|
$ |
1,321 |
|
Investing activities |
$ |
(333 |
) |
|
$ |
(401 |
) |
|
$ |
(988 |
) |
|
$ |
(1,209 |
) |
Financing activities |
$ |
(18 |
) |
|
$ |
(93 |
) |
|
$ |
(275 |
) |
|
$ |
(86 |
) |
|
|
|
|
|
|
|
|
Net cash provided by
(used in) operating activities |
$ |
446 |
|
|
$ |
498 |
|
|
$ |
1,246 |
|
|
$ |
1,321 |
|
Dealer generated customer
accounts and bulk account purchases |
|
(133 |
) |
|
|
(159 |
) |
|
|
(385 |
) |
|
|
(500 |
) |
Subscriber system asset
expenditures |
|
(161 |
) |
|
|
(194 |
) |
|
|
(481 |
) |
|
|
(573 |
) |
Purchases of property and
equipment |
|
(41 |
) |
|
|
(48 |
) |
|
|
(131 |
) |
|
|
(136 |
) |
Free Cash Flow |
|
111 |
|
|
|
97 |
|
|
|
249 |
|
|
|
112 |
|
Net proceeds from receivables
facility |
|
20 |
|
|
|
38 |
|
|
|
68 |
|
|
|
131 |
|
Financing and consent
fees |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Restructuring and integration
payments(1) |
|
13 |
|
|
|
6 |
|
|
|
27 |
|
|
|
13 |
|
Integration-related capital
expenditures |
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
2 |
|
Radio conversion costs,
net |
|
(1 |
) |
|
|
(2 |
) |
|
|
(4 |
) |
|
|
10 |
|
Other, net(2) |
|
5 |
|
|
|
4 |
|
|
|
8 |
|
|
|
21 |
|
Adjusted Free Cash Flow |
$ |
148 |
|
|
$ |
145 |
|
|
$ |
348 |
|
|
$ |
288 |
|
Interest rate swaps presented
within financing activities(3) |
|
23 |
|
|
|
(2 |
) |
|
|
59 |
|
|
|
(27 |
) |
Adjusted Free Cash Flow (including interest rate
swaps) |
$ |
171 |
|
|
$ |
143 |
|
|
$ |
408 |
|
|
$ |
261 |
|
Note: amounts may not sum due to rounding
_______________________(1) During 2023,
primarily includes ADT Solar integration costs and restructuring
activities.(2) During 2022, primarily includes acquisition costs
related to the ADT Solar Acquisition. During 2023, primarily
includes separation costs related to the divestiture of the
commercial business.(3) Includes net settlements related to
interest rate swaps with an other-than-insignificant financing
element at inception, which is presented within net cash provided
by (used in) financing activities.
Adjusted Income (Loss) from Continuing
Operations (“Adjusted Income (Loss)”) and Adjusted Diluted Income
(Loss) per Share from Continuing Operations (“Adjusted Diluted
Income (Loss) per Share”) (or, Adjusted
EPS)
We define Adjusted Income (Loss) as income
(loss) from continuing operations adjusted for (i) merger,
restructuring, integration, and other items such as separation
costs; (ii) losses on extinguishment of debt; (iii) radio
conversion costs net of any related incremental revenue earned;
(iv) share-based compensation expense; (v) unrealized gains and
losses on interest rate swap contracts not designated as hedges;
(vi) other income/gain or expense/loss items such as changes in
fair value of certain financial instruments, impairment charges,
financing and consent fees, or acquisition-related adjustments; and
(vii) the impact these adjusted items have on taxes.
Adjusted Diluted Income (Loss) per share is
Adjusted Income (Loss) divided by diluted weighted-average shares
outstanding of common stock.
We believe Adjusted Income (Loss) and Adjusted
Diluted Income (Loss) per share are benchmarks used by analysts and
investors who follow the industry for comparison of its performance
with other companies in the industry, although our measures may not
be directly comparable to similar measures reported by other
companies.
There are material limitations to using these
measures, as they do not reflect certain significant items which
directly affect our income (loss) from continuing operations and
related per share amounts (the most comparable GAAP measures).
Prior to the third quarter of 2023, the Company
presented Adjusted Net Income along with a reconciliation to GAAP
net income and Adjusted Diluted Net Income (Loss) per share along
with a reconciliation to GAAP Diluted Net Income (Loss) per share.
As the Company did not report discontinued operations prior to the
third quarter of 2023, net income (loss) reflected all of the
Company’s operations, including the commercial business. Since the
beginning of the third quarter of 2023, results of the commercial
business are presented in accordance with GAAP as discontinued
operations. Therefore, the Company now presents Adjusted Income
(Loss) and Adjusted Diluted Income (Loss) per share along with
reconciliations to GAAP income (loss) from continuing operations
and GAAP Diluted income (loss) from continuing operations per
share, respectively, as the most directly comparable GAAP
measures.
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
(in millions, except per share data) |
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
Income (loss) from
continuing operations |
$ |
(21 |
) |
|
$ |
(169 |
) |
|
$ |
(150 |
) |
|
$ |
(35 |
) |
Merger, restructuring,
integration, and other(1) |
|
16 |
|
|
|
5 |
|
|
|
42 |
|
|
|
1 |
|
Goodwill impairment(1) |
|
88 |
|
|
|
201 |
|
|
|
511 |
|
|
|
201 |
|
Change in fair value of other
financial instruments(1) |
|
— |
|
|
|
158 |
|
|
|
— |
|
|
|
158 |
|
Share-based compensation
expense |
|
10 |
|
|
|
14 |
|
|
|
31 |
|
|
|
40 |
|
Interest rate swaps,
net(2) |
|
9 |
|
|
|
(108 |
) |
|
|
(13 |
) |
|
|
(313 |
) |
Non-cash acquisition-related
adjustments and other, net(1) |
|
(1 |
) |
|
|
(5 |
) |
|
|
2 |
|
|
|
33 |
|
Tax impact on
adjustments(3) |
|
(33 |
) |
|
|
(23 |
) |
|
|
(210 |
) |
|
|
14 |
|
Adjusted Income (Loss) from continuing
operations |
$ |
69 |
|
|
$ |
72 |
|
|
$ |
213 |
|
|
$ |
99 |
|
|
|
|
|
|
|
|
|
Weighted-average
shares outstanding -
diluted(4): |
|
|
|
|
|
|
|
Common Stock |
|
857 |
|
|
|
850 |
|
|
|
856 |
|
|
|
847 |
|
Class B Common Stock |
|
55 |
|
|
|
55 |
|
|
|
55 |
|
|
|
55 |
|
|
|
|
|
|
|
|
|
Income (loss) per
share from continuing operations - diluted: |
|
|
|
|
|
|
|
Common Stock |
$ |
(0.02 |
) |
|
$ |
(0.19 |
) |
|
$ |
(0.16 |
) |
|
$ |
(0.04 |
) |
Class B Common Stock |
$ |
(0.02 |
) |
|
$ |
(0.19 |
) |
|
$ |
(0.16 |
) |
|
$ |
(0.04 |
) |
|
|
|
|
|
|
|
|
Adjusted Diluted
Income (Loss) per share(5) |
$ |
0.08 |
|
|
$ |
0.09 |
|
|
$ |
0.25 |
|
|
$ |
0.12 |
|
Note: amounts may not sum due to
rounding._______________________(1) Refer to the footnotes to the
reconciliation of Adjusted EBITDA to income (loss) from continuing
operations.(2) Primarily includes the unrealized (gain) or loss on
interest rate swaps not designated as cash flow hedges. During Q3
2023, includes $25 million associated with the reclassification to
interest expense, net from accumulated other comprehensive income
(“AOCI”) of historical losses related to certain interest rate
swaps for which the Company previously applied hedge accounting but
for which the cash flows are probable of not occurring as a result
of the partial redemption of the Company’s First Lien Term Loan due
2026.(3) Represents the statutory rate, inclusive of the federal
statutory rate, which reflects the tax impact of our filing posture
in combined, unitary, and separate reporting states. Our state tax
profile varies by state.(4) Refer to the Company’s Quarterly
Reports on Form 10-Q and Annual Reports (as Amended) on Form 10-K
(or Form 10-K/A) for further discussion regarding the computation
of diluted weighted-average shares outstanding of common stock.(5)
Calculated as Adjusted Income (Loss) divided by diluted
weighted-average shares outstanding of Common Stock.
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