ADT Inc. (NYSE: ADT), the most trusted brand in smart home and
small business security, today reported results for the first
quarter of 2023.
Financial highlights for the first quarter of
2023 are listed below. Variances are on a year-over-year basis
unless otherwise noted.
- Total revenue of
$1.6 billion, up 4%, and end-of-period recurring monthly
revenue (RMR) of $378 million, up 4%
- High customer
retention with gross customer revenue attrition maintaining record
low of 12.5%
- Record revenue
payback of 2.0 years
- GAAP net loss of
$90 million, or a loss of $(0.10) per diluted share, down
$141 million, which includes $193 million negative impact from
Solar segment goodwill impairment
- Adjusted net
income of $102 million, or $0.12 per diluted share, up
$109 million
- Adjusted EBITDA
of $625 million, up $24 million or 4%
“Demonstrating the resiliency of our business
model, we had a strong start to 2023 with continued momentum in
generating revenue and cash flow growth,” said ADT President and
CEO, Jim DeVries. “Contributing to this momentum were a number of
initiatives including our Google partnership, the strength of our
Commercial business and our execution plans for changing the
trajectory in Solar. ADT remains on track for continued positive
progress across all our businesses and advancing toward our 2025
goals.”
BUSINESS HIGHLIGHTS
Foundation for Growth
- Continued
growth of RMR – The end-of-period RMR balance was $378 million,
representing a 4% increase over the prior year period.
Approximately 80% of total Consumer and Small Business (CSB) and
Commercial revenue was generated from this durable recurring
revenue.
- Maintaining
record customer retention and improving revenue payback – With
strong customer satisfaction, trailing 12-month gross customer
revenue attrition was 12.5%, a 40-basis-point improvement versus
the prior year period, and revenue payback ended the first quarter
of 2023 at 2.0 years, reflecting a 0.3x year-over-year
improvement.
- Record
Commercial performance – ADT Commercial delivered record adjusted
EBITDA of $41 million and March was the best month in history.
Innovative Offerings
- ADT and State
Farm begin pilot program – ADT and State Farm’s partnership
advanced with the launch of the ADT Home Security Program
pilot in Indiana, Illinois, and Pennsylvania. State Farm customers
can enjoy greater peace of mind and proactive protection against
common household perils, with professional smart home security
installation and exclusive discounts. The pilot program is expected
to expand to nine states by year end 2023.
- ADT Self Setup
now available – The Company began selling the ADT Self Setup smart
home security system for DIY customers in February, which
integrates Google Nest smart home products with ADT security and
life safety technology, through the convenient control of the new
ADT+ app. Since launch, sales of ADT Self Setup have exceeded the
Company’s expectations.
Unrivaled Safety
- Alarm
verification – ADT Self Setup customers who subscribe to ADT SMART
Monitoring will now receive video from their enrolled Google Nest
Cameras during an alarm event. With text verification through ADT
Alarm Messenger, the Company has reduced false alarms by more than
50%.
- ADT Commercial
sells first autonomous guarding solution – ADT Commercial completed
its first pilot sale of the EvoGuard brand of autonomous
intelligent guarding solutions. EvoGuard is aimed at helping to
cost-effectively enhance corporate security programs, while
responding to high turnover rates and ongoing labor shortages in
the guarding market. ADT anticipates commercialization of the
indoor drones later in 2023.
Premium Experience
- New ADT+ app –
In January, ADT rolled out its new ADT+ app, an integrated platform
that allows ADT Self Setup customers to access their enrolled ADT
and Google Nest products in one place. The app provides customers
with a more advanced and seamless experience across security, life
safety, home automation and analytics through a common
application.
- Virtual
Assistance now available for ADT Self Setup – The Company further
expanded Virtual Assistance to ADT Self Setup customers, providing
DIY customers extra assurance from an ADT professional. Since its
launch in 2021, more than 1 million ADT Virtual Assistance
appointments have been delivered, creating more convenient customer
experiences and reducing expenses related to in-home service and
support.
Progress on our ESG Journey
- 2022 ESG Report
highlights advancements – ADT published its 2022 ESG report to
highlight progress across the company’s ESG pillars. The 2022
report is supplementary to the company’s 2021 ESG report.
- Building safer
gaming communities – In partnership with the Black Collegiate
Gaming Association, ADT will secure Alabama State’s new gaming lab.
This new lab gives students a safe place to innovate and continue
making advancements in the continuously growing gaming and
technology industries.
- Sustainability
Business Employee Resource Group – ADT introduced a tenth business
employee resource group (BERG) for its employees with a focus on
sustainability. The Sustainability BERG aims to empower ADT
employees to promote environmental stewardship, social
responsibility and good governance.
2023 FINANCIAL OUTLOOK
The Company is reiterating its financial
guidance for 2023:
(in millions) |
|
|
Total Revenue |
|
$6,600 - $6,850 |
Adjusted EBITDA |
|
$2,525 - $2,625 |
Adjusted EPS |
|
$0.30 - $0.40 |
Adjusted Free Cash Flow (including interest rate swaps) |
|
$600 - $700 |
Adjusted Free Cash Flow |
|
$525 - $625 |
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 March 31, |
|
|
2023 |
|
|
|
2022 |
|
|
GAAP |
Total revenue |
|
$ |
1,612 |
|
|
$ |
1,545 |
|
Net income (loss) |
|
$ |
(90 |
) |
|
$ |
52 |
|
Net cash provided by (used in): |
|
|
|
|
Operating activities |
|
$ |
307 |
|
|
$ |
308 |
|
Investing activities |
|
$ |
(336 |
) |
|
$ |
(405 |
) |
Financing activities |
|
$ |
(41 |
) |
|
$ |
92 |
|
Net income (loss) per share of Common Stock - diluted |
|
$ |
(0.10 |
) |
|
$ |
0.06 |
|
Net income (loss) per share of Class B Common Stock - diluted |
|
$ |
(0.10 |
) |
|
$ |
0.06 |
|
|
|
Non-GAAP Measures |
Adjusted EBITDA |
|
$ |
625 |
|
|
$ |
601 |
|
Adjusted Free Cash Flow |
|
$ |
— |
|
|
$ |
(42 |
) |
Adjusted Free Cash Flow (including interest rate swaps) |
|
$ |
16 |
|
|
$ |
(55 |
) |
Adjusted Net Income (Loss) |
|
$ |
102 |
|
|
$ |
(7 |
) |
Adjusted Diluted Net Income (Loss) per share |
|
$ |
0.12 |
|
|
$ |
(0.01 |
) |
|
|
Other Measures |
Trailing twelve-month revenue payback |
|
2.0 years |
|
2.3 years |
Trailing twelve-month gross customer revenue attrition |
|
|
12.5% |
|
|
|
12.9% |
|
End of period RMR |
|
$ |
378 |
|
|
$ |
365 |
|
SEGMENT RESULTS (2)
CSB
|
|
Three Months Ended March 31, |
(in millions) |
|
2023 |
|
2022 |
|
$ Change |
|
% Change |
Monitoring and related services |
|
$ |
1,029 |
|
|
$ |
993 |
|
|
$ |
36 |
|
|
4 |
% |
Security installation, product, and other |
|
|
104 |
|
|
|
70 |
|
|
|
34 |
|
|
49 |
% |
Total CSB revenue |
|
$ |
1,132 |
|
|
$ |
1,063 |
|
|
$ |
70 |
|
|
7 |
% |
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
595 |
|
|
$ |
561 |
|
|
$ |
34 |
|
|
6 |
% |
Adjusted EBITDA Margin (as a % of Total CSB Revenue) |
|
|
53 |
% |
|
|
53 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total CSB revenue was $1,132 million for the
first quarter, up 7% versus the prior year. This performance was
driven by an increase in monitoring and related services (M&S)
revenue resulting from improved customer retention and higher
average pricing, which has been aided by our Google
partnership.
CSB Adjusted EBITDA increased 6% to $595 million
in the first quarter. These improvements were driven by higher
M&S revenue and enhanced cost discipline.
Commercial
|
|
Three Months Ended March 31, |
(in millions) |
|
2023 |
|
2022 |
|
$ Change |
|
% Change |
Monitoring and related services |
|
$ |
145 |
|
|
$ |
128 |
|
|
$ |
16 |
|
|
13 |
% |
Security installation, product, and other |
|
|
190 |
|
|
|
162 |
|
|
|
28 |
|
|
18 |
% |
Total Commercial revenue |
|
$ |
335 |
|
|
$ |
290 |
|
|
$ |
45 |
|
|
15 |
% |
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
41 |
|
|
$ |
24 |
|
|
$ |
17 |
|
|
73 |
% |
Adjusted EBITDA Margin (as a % of Total Commercial Revenue) |
|
|
12 |
% |
|
|
8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial revenue was $335 million for
the first quarter, up 15% versus prior year. Improvements were
driven by an increase in installation volumes as well as increases
in product and service prices.
Commercial Adjusted EBITDA increased 73% to $41
million in the first quarter. These improvements were driven by
higher revenue and improved cost performance, which were partially
offset by the impact of cost inflation.
Solar
|
|
Three Months Ended March 31, |
|
(in millions) |
|
2023 |
|
2022 |
|
$ Change |
|
% Change |
|
Solar installation, product, and other |
|
$ |
145 |
|
|
$ |
192 |
|
|
$ |
(47 |
) |
|
(25 |
)% |
Total Solar revenue |
|
$ |
145 |
|
|
$ |
192 |
|
|
$ |
(47 |
) |
|
(25 |
)% |
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
(11 |
) |
|
$ |
17 |
|
|
$ |
(27 |
) |
|
N/M |
|
Adjusted EBITDA Margin (as a % of Total Solar Revenue) |
|
(7 |
)% |
|
|
9 |
% |
|
|
|
|
|
Note: M&S revenue is not applicable to the Solar segment. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Solar revenue for the first quarter was
$145 million, down 25% versus prior year. This performance was
driven by lower install throughput and weaker sales
performance.
Solar Adjusted EBITDA was an $11 million loss
for the first quarter. Adjusted EBITDA was negatively impacted by
volume and efficiency-related impacts from lower installation
throughput.
The Company recognized a non-cash goodwill
impairment charge of $193 million associated with the Solar
segment. This charge is a result of current macroeconomic
conditions, such as rising interest rates, the impact of financial
market conditions on the Company’s third-party lenders and customer
demand, as well as Solar’s underperformance of operating results
relative to expectations in the first quarter of 2023. This
goodwill impairment charge has been excluded from Adjusted
EBITDA.
BALANCE SHEET, CASH, AND
LIQUIDITY
|
|
Three Months Ended March 31, |
(in millions) |
|
2023 |
|
2022 |
|
$ Change |
|
% Change |
Net cash provided by (used in) operating activities |
|
$ |
307 |
|
|
$ |
308 |
|
|
$ |
(1 |
) |
|
— |
% |
Adjusted Free Cash Flow |
|
$ |
— |
|
|
$ |
(42 |
) |
|
$ |
42 |
|
|
N/M |
Adjusted Free Cash Flow (including interest rate swaps) |
|
$ |
16 |
|
|
$ |
(55 |
) |
|
$ |
71 |
|
|
N/M |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities during
the first quarter of 2023 was $307 million, which was flat versus
prior year period. Adjusted Free Cash Flow including the benefit of
interest rate swaps increased $71 million versus the prior year
period as lower subscriber acquisition costs were partially offset
by higher technology investment. The company returned $32 million
to shareholders in dividends during the first quarter of 2023.
On March 15, 2023, the Company used the proceeds
from its Term Loan A Facility to redeem approximately $600 million
of the ADT Notes due 2023. The Company intends to redeem the
remaining outstanding balance of approximately $100 million of the
ADT Notes due 2023 at or prior to maturity in June 2023 using
proceeds from our Incremental Term A Loans and cash on hand.
On March 17, 2023, the Company provided a
partial redemption notice to pay off $150 million of the $750
million ADT Notes due 2024, and on May 2, 2023 the Company will
redeem that amount using cash on hand.
DIVIDEND DECLARATION
Effective May 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 June 15, 2023. This dividend will be paid on July 6,
2023.
_____________________ |
(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 Net Income
(Loss), Adjusted Diluted Net 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. |
(2 |
) |
Amounts may not sum due to rounding. |
Conference Call
As previously announced, management will host a
conference call at 10:00 a.m. ET today to discuss the Company’s
first 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 1-888-660-6144 (domestic) or 1-929-203-0865
(international) and requesting the ADT First Quarter 2023 Earnings
Conference Call. An audio replay will be available for two weeks
following the call and can be accessed by dialing 1-800-770-2030
(domestic) or 1-647-362-9199 (international) and providing the
passcode 5974526.
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 businesses. Through innovative
offerings, unrivaled safety, and a premium customer experience, all
delivered by the largest network 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
and in other reports, filings, and other public written and verbal
announcements that are forward-looking and therefore subject to
risks and uncertainties herein. 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 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
2025 goals; 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; the
Company’s acquisition of ADT Solar and its anticipated impact on
the Company’s business and financial condition; 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 commercialization of the Company’s joint venture
with Ford; 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 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; risks and uncertainties
related to the Company’s ability to successfully integrate and
operate the ADT Solar business; the Company’s ability to
commercialize its joint venture with Ford; 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; and risk factors
that are described in the Company’s Annual Report on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and
other filings with the SEC, including the sections entitled “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.
ADT INC. AND
SUBSIDIARIESCONSOLIDATED STATEMENTS OF
OPERATIONS(in millions, except per share
data)(Unaudited)
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
2023 |
|
2022 |
|
$ Change |
|
% Change |
Revenue: |
|
|
|
|
|
|
|
|
Monitoring and related services |
|
$ |
1,173 |
|
|
$ |
1,121 |
|
|
$ |
52 |
|
|
5% |
Security installation, product, and other |
|
|
294 |
|
|
|
231 |
|
|
|
63 |
|
|
27% |
Solar installation, product, and other |
|
|
145 |
|
|
|
192 |
|
|
|
(47 |
) |
|
(25)% |
Total revenue |
|
|
1,612 |
|
|
|
1,545 |
|
|
|
68 |
|
|
4% |
Cost of revenue (exclusive of depreciation and
amortization shown separately below): |
|
|
|
|
|
|
|
|
Monitoring and related services |
|
|
246 |
|
|
|
236 |
|
|
|
11 |
|
|
5% |
Security installation, product, and other |
|
|
169 |
|
|
|
139 |
|
|
|
31 |
|
|
22% |
Solar installation, product, and other |
|
|
98 |
|
|
|
135 |
|
|
|
(37 |
) |
|
(27)% |
Total cost of revenue |
|
|
514 |
|
|
|
510 |
|
|
|
4 |
|
|
1% |
Selling, general, and administrative expenses |
|
|
462 |
|
|
|
482 |
|
|
|
(20 |
) |
|
(4)% |
Depreciation and intangible asset amortization |
|
|
383 |
|
|
|
476 |
|
|
|
(93 |
) |
|
(20)% |
Merger, restructuring, integration, and other |
|
|
18 |
|
|
|
1 |
|
|
|
17 |
|
|
N/M |
Goodwill impairment |
|
|
193 |
|
|
|
— |
|
|
|
193 |
|
|
N/M |
Operating income (loss) |
|
|
43 |
|
|
|
76 |
|
|
|
(33 |
) |
|
(44)% |
Interest expense, net |
|
|
(172 |
) |
|
|
(6 |
) |
|
|
(165 |
) |
|
N/M |
Other income (expense) |
|
|
(1 |
) |
|
|
1 |
|
|
|
(3 |
) |
|
N/M |
Income (loss) before income taxes and equity in net
earnings (losses) of equity method investee |
|
|
(130 |
) |
|
|
71 |
|
|
|
(201 |
) |
|
N/M |
Income tax benefit (expense) |
|
|
43 |
|
|
|
(20 |
) |
|
|
63 |
|
|
N/M |
Income (loss) before equity in net earnings (losses) of
equity method investee |
|
|
(87 |
) |
|
|
52 |
|
|
|
(139 |
) |
|
N/M |
Equity in net earnings (losses) of equity method investee |
|
|
(3 |
) |
|
|
— |
|
|
|
(3 |
) |
|
N/M |
Net income (loss) |
|
$ |
(90 |
) |
|
$ |
52 |
|
|
$ |
(141 |
) |
|
N/M |
|
|
|
|
|
|
|
|
|
Net income (loss) per share - basic: |
|
|
|
|
|
|
|
|
Common Stock |
|
$ |
(0.10 |
) |
|
$ |
0.06 |
|
|
|
|
|
Class B Common Stock |
|
$ |
(0.10 |
) |
|
$ |
0.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding - basic: |
|
|
|
|
|
|
|
|
Common Stock |
|
|
854 |
|
|
|
844 |
|
|
|
|
|
Class B Common Stock |
|
|
55 |
|
|
|
55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share - diluted: |
|
|
|
|
|
|
|
|
Common Stock |
|
$ |
(0.10 |
) |
|
$ |
0.06 |
|
|
|
|
|
Class B Common Stock |
|
$ |
(0.10 |
) |
|
$ |
0.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding -
diluted: |
|
|
|
|
|
|
|
|
Common Stock |
|
|
854 |
|
|
|
911 |
|
|
|
|
|
Class B Common Stock |
|
|
55 |
|
|
|
55 |
|
|
|
|
|
Note: amounts may not sum due to rounding
ADT INC. AND
SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE
SHEETS(in
millions)(Unaudited)
|
March 31, 2023 |
|
December 31, 2022 |
Assets |
|
|
|
Current assets: |
|
|
|
Cash and cash equivalents |
$ |
186 |
|
|
$ |
257 |
|
Restricted cash and restricted cash equivalents |
|
117 |
|
|
|
116 |
|
Accounts receivable, net |
|
598 |
|
|
|
597 |
|
Inventories, net |
|
327 |
|
|
|
329 |
|
Work-in-progress |
|
72 |
|
|
|
81 |
|
Prepaid expenses and other current assets |
|
324 |
|
|
|
341 |
|
Total current assets |
|
1,625 |
|
|
|
1,722 |
|
Property and equipment, net |
|
356 |
|
|
|
376 |
|
Subscriber system assets, net |
|
3,079 |
|
|
|
3,061 |
|
Intangible assets, net |
|
5,020 |
|
|
|
5,092 |
|
Goodwill |
|
5,627 |
|
|
|
5,819 |
|
Deferred subscriber acquisition costs, net |
|
1,120 |
|
|
|
1,080 |
|
Other assets |
|
720 |
|
|
|
724 |
|
Total assets |
$ |
17,546 |
|
|
$ |
17,873 |
|
|
|
|
|
Liabilities and stockholders' equity |
|
|
|
Current liabilities: |
|
|
|
Current maturities of long-term debt |
$ |
465 |
|
|
$ |
872 |
|
Accounts payable |
|
398 |
|
|
|
487 |
|
Deferred revenue |
|
395 |
|
|
|
403 |
|
Accrued expenses and other current liabilities |
|
741 |
|
|
|
900 |
|
Total current liabilities |
|
1,999 |
|
|
|
2,661 |
|
Long-term debt |
|
9,376 |
|
|
|
8,957 |
|
Deferred subscriber acquisition revenue |
|
1,735 |
|
|
|
1,645 |
|
Deferred tax liabilities |
|
856 |
|
|
|
905 |
|
Other liabilities |
|
266 |
|
|
|
272 |
|
Total liabilities |
|
14,231 |
|
|
|
14,440 |
|
|
|
|
|
Total stockholders' equity |
|
3,315 |
|
|
|
3,433 |
|
Total liabilities and stockholders'
equity |
$ |
17,546 |
|
|
$ |
17,873 |
|
Note: amounts may not sum due to rounding
ADT INC. AND
SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS(in
millions)(Unaudited)
|
|
Three Months Ended March 31, |
|
|
|
2023 |
|
|
|
2022 |
|
Cash flows from operating activities: |
|
|
|
|
Net income (loss) |
|
$ |
(90 |
) |
|
$ |
52 |
|
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities: |
|
|
|
|
Depreciation and intangible asset amortization |
|
|
383 |
|
|
|
476 |
|
Amortization of deferred subscriber acquisition costs |
|
|
47 |
|
|
|
37 |
|
Amortization of deferred subscriber acquisition revenue |
|
|
(72 |
) |
|
|
(53 |
) |
Share-based compensation expense |
|
|
16 |
|
|
|
16 |
|
Deferred income taxes |
|
|
(50 |
) |
|
|
16 |
|
Provision for losses on receivables and inventory |
|
|
26 |
|
|
|
19 |
|
Goodwill, intangible, and other asset impairments |
|
|
194 |
|
|
|
— |
|
Unrealized (gain) loss on interest rate swap contracts |
|
|
33 |
|
|
|
(145 |
) |
Other non-cash items, net |
|
|
29 |
|
|
|
65 |
|
Changes in operating assets and liabilities, net of effects of
acquisitions: |
|
|
|
|
Deferred subscriber acquisition costs |
|
|
(87 |
) |
|
|
(93 |
) |
Deferred subscriber acquisition revenue |
|
|
74 |
|
|
|
81 |
|
Other, net |
|
|
(195 |
) |
|
|
(163 |
) |
Net cash provided by (used in) operating activities |
|
|
307 |
|
|
|
308 |
|
Cash flows from investing activities: |
|
|
|
|
Dealer generated customer accounts and bulk account purchases |
|
|
(116 |
) |
|
|
(185 |
) |
Subscriber system asset expenditures |
|
|
(159 |
) |
|
|
(182 |
) |
Purchases of property and equipment |
|
|
(59 |
) |
|
|
(38 |
) |
Other investing, net |
|
|
(2 |
) |
|
|
— |
|
Net cash provided by (used in) investing activities |
|
|
(336 |
) |
|
|
(405 |
) |
Cash flows from financing activities: |
|
|
|
|
Proceeds from long-term borrowings |
|
|
600 |
|
|
|
280 |
|
Proceeds from receivables facility |
|
|
64 |
|
|
|
47 |
|
Repayment of long-term borrowings, including call premiums |
|
|
(607 |
) |
|
|
(143 |
) |
Repayment of receivables facility |
|
|
(44 |
) |
|
|
(21 |
) |
Dividends on common stock |
|
|
(32 |
) |
|
|
(32 |
) |
Payments on finance leases |
|
|
(11 |
) |
|
|
(11 |
) |
Proceeds (payments) from interest rate swaps |
|
|
16 |
|
|
|
(13 |
) |
Other financing, net |
|
|
(26 |
) |
|
|
(16 |
) |
Net cash provided by (used in) financing activities |
|
|
(41 |
) |
|
|
92 |
|
Cash and cash equivalents and restricted cash and
restricted cash equivalents: |
|
|
|
|
Net increase (decrease) during the period |
|
|
(70 |
) |
|
|
(5 |
) |
Beginning balance |
|
|
374 |
|
|
|
33 |
|
Ending balance |
|
$ |
304 |
|
|
$ |
28 |
|
Note: amounts may not sum due to rounding
ADT INC. AND
SUBSIDIARIESSEGMENT
INFORMATION(in
millions)(Unaudited)
Revenue by Segment
|
|
Three Months Ended March 31, |
(in millions) |
|
|
2023 |
|
|
|
2022 |
|
CSB: |
|
|
|
|
Monitoring and related services |
|
$ |
1,029 |
|
|
$ |
993 |
|
Security installation, product, and other |
|
|
104 |
|
|
|
70 |
|
Total CSB |
|
|
1,132 |
|
|
|
1,063 |
|
|
|
|
|
|
Commercial: |
|
|
|
|
Monitoring and related services |
|
|
145 |
|
|
|
128 |
|
Security installation, product, and other |
|
|
190 |
|
|
|
162 |
|
Total Commercial |
|
|
335 |
|
|
|
290 |
|
|
|
|
|
|
Solar: |
|
|
|
|
Solar installation, product, and other |
|
|
145 |
|
|
|
192 |
|
Total Solar |
|
|
145 |
|
|
|
192 |
|
|
|
|
|
|
Total Revenue |
|
$ |
1,612 |
|
|
$ |
1,545 |
|
Adjusted EBITDA by Segment
|
|
Three Months Ended March 31, |
(in millions) |
|
|
2023 |
|
|
|
2022 |
|
CSB |
|
$ |
595 |
|
|
$ |
561 |
|
Commercial |
|
|
41 |
|
|
|
24 |
|
Solar |
|
|
(11 |
) |
|
|
17 |
|
Total |
|
$ |
625 |
|
|
$ |
601 |
|
Adjusted EBITDA Margin by
Segment
|
|
Three Months Ended March 31, |
|
|
2023 |
|
2022 |
CSB (as a % of Total CSB Revenue) |
|
53 |
% |
|
53 |
% |
Commercial (as a % of Total Commercial Revenue) |
|
12 |
% |
|
8 |
% |
Solar (as a % of Total Solar Revenue) |
|
(7 |
)% |
|
9 |
% |
Note: amounts may not sum due to rounding
ADT INC. AND
SUBSIDIARIESNON-GAAP MEASURES
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 net income
(loss), 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.
ADT INC. AND
SUBSIDIARIESU.S. GAAP to Non-GAAP
RECONCILIATIONS(Unaudited)
Adjusted EBITDA, Adjusted EBITDA Margin,
and Reconciliation to GAAP Net Income or Loss
We believe the presentation of 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 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 that of other peer companies using similar
measures.
We define Adjusted EBITDA as net income or loss
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; (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 net income or loss (the most comparable GAAP
measure).
The Adjusted EBITDA discussion above is also
applicable to Adjusted EBITDA margin, which is calculated as
Adjusted EBITDA as a percentage of total revenue.
|
|
Three Months Ended March 31, |
(in millions) |
|
2023 |
|
2022 |
Net income (loss) |
|
$ |
(90 |
) |
|
$ |
52 |
|
Interest expense, net |
|
|
172 |
|
|
|
6 |
|
Income tax expense (benefit) |
|
|
(43 |
) |
|
|
20 |
|
Depreciation and intangible asset amortization |
|
|
383 |
|
|
|
476 |
|
Amortization of deferred subscriber acquisition costs |
|
|
47 |
|
|
|
37 |
|
Amortization of deferred subscriber acquisition revenue |
|
|
(72 |
) |
|
|
(53 |
) |
Share-based compensation expense |
|
|
16 |
|
|
|
16 |
|
Merger, restructuring, integration and other |
|
|
18 |
|
|
|
1 |
|
Goodwill impairment(1) |
|
|
193 |
|
|
|
— |
|
Acquisition-related adjustments(2) |
|
|
2 |
|
|
|
36 |
|
Other, net(3) |
|
|
— |
|
|
|
11 |
|
Adjusted EBITDA |
|
$ |
625 |
|
|
$ |
601 |
|
|
|
|
|
|
Net income (loss) to total revenue ratio |
|
(6 |
)% |
|
|
3 |
% |
Adjusted EBITDA Margin (as percentage of Total Revenue) |
|
|
39 |
% |
|
|
39 |
% |
Note: amounts may not sum due to
rounding_______________________(1) Represents a goodwill impairment
charge related to the Solar reporting unit in Q1 2023.(2) Primarily
represents amortization of the customer backlog intangible asset
during Q1 2022 related to the ADT Solar Acquisition.(3) Primarily
represents net costs associated with replacing cellular technology
used in many of our security systems pursuant to a replacement
program (net radio conversion costs).
Free Cash Flow, Adjusted Free Cash Flow,
Adjusted Free Cash Flow including interest rate swaps, and
Reconciliation to GAAP Net Cash Flows from Operating
Activities
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.
|
|
Three Months Ended March 31, |
(in millions) |
|
|
2023 |
|
|
|
2022 |
|
Net cash provided by (used in): |
|
|
|
|
Operating activities |
|
$ |
307 |
|
|
$ |
308 |
|
Investing activities |
|
$ |
(336 |
) |
|
$ |
(405 |
) |
Financing activities |
|
$ |
(41 |
) |
|
$ |
92 |
|
|
|
|
|
|
Net cash provided by (used in) operating
activities |
|
$ |
307 |
|
|
$ |
308 |
|
Dealer generated customer accounts and bulk account purchases |
|
|
(116 |
) |
|
|
(185 |
) |
Subscriber system asset expenditures |
|
|
(159 |
) |
|
|
(182 |
) |
Purchases of property and equipment |
|
|
(59 |
) |
|
|
(38 |
) |
Free Cash Flow |
|
|
(28 |
) |
|
|
(97 |
) |
Net proceeds from receivables facility |
|
|
19 |
|
|
|
26 |
|
Restructuring and integration payments(1) |
|
|
7 |
|
|
|
3 |
|
Integration-related capital expenditures |
|
|
— |
|
|
|
1 |
|
Radio conversion costs, net |
|
|
(1 |
) |
|
|
12 |
|
Other, net(2) |
|
|
2 |
|
|
|
13 |
|
Adjusted Free Cash Flow |
|
$ |
— |
|
|
$ |
(42 |
) |
Interest rate swaps presented within financing activities(3) |
|
|
16 |
|
|
|
(13 |
) |
Adjusted Free Cash Flow including interest rate
swaps |
|
$ |
16 |
|
|
$ |
(55 |
) |
Note: amounts may not sum due to
rounding_______________________(1) Q1 2023 primarily includes ADT
Solar integration costs.(2) Q1 2022 primarily includes acquisition
costs related to the ADT Solar Acquisition.(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 Net Income (Loss), Adjusted
Diluted Net Income (Loss) per Share (or, Adjusted EPS), and
Reconciliations to GAAP Net Income (Loss) and GAAP Diluted Net
Income (Loss) per Share
We define Adjusted Net Income (Loss) as net
income (loss) adjusted for (i) merger, restructuring, integration,
and other; (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 Net Income (Loss) per share is
Adjusted Net Income (Loss) divided by diluted weighted-average
shares outstanding of common stock. In periods of GAAP net loss,
diluted weighted-average shares outstanding of common stock does
not include the assumed conversion of Class B Common Stock and
other potential shares, such as share-based compensation awards, to
shares of Common Stock as the results would be anti-dilutive.
We believe Adjusted Net Income (Loss) and
Adjusted Diluted Net 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 net income (loss) and related per share amounts
(the most comparable GAAP measures).
|
|
Three Months Ended March 31, |
(in millions, except per share data) |
|
|
2023 |
|
|
|
2022 |
|
Net income (loss) |
|
$ |
(90 |
) |
|
$ |
52 |
|
Merger, restructuring, integration, and other |
|
|
18 |
|
|
|
1 |
|
Goodwill impairment(1) |
|
|
193 |
|
|
|
— |
|
Share-based compensation expense |
|
|
16 |
|
|
|
16 |
|
Unrealized (gain) loss on interest rate swaps(2) |
|
|
33 |
|
|
|
(145 |
) |
Acquisition-related adjustments(3) |
|
|
2 |
|
|
|
36 |
|
Other, net(4) |
|
|
— |
|
|
|
11 |
|
Tax impact on adjustments |
|
|
(69 |
) |
|
|
23 |
|
Adjusted Net Income (Loss) |
|
$ |
102 |
|
|
$ |
(7 |
) |
|
|
|
|
|
Weighted-average shares outstanding -
diluted(5): |
|
|
|
|
Common Stock |
|
|
854 |
|
|
|
911 |
|
Class B Common Stock |
|
|
55 |
|
|
|
55 |
|
|
|
|
|
|
Net income (loss) per share - diluted: |
|
|
|
|
Common Stock |
|
$ |
(0.10 |
) |
|
$ |
0.06 |
|
Class B Common Stock |
|
$ |
(0.10 |
) |
|
$ |
0.06 |
|
|
|
|
|
|
Adjusted Diluted Net Income (Loss) per
share(6) |
|
$ |
0.12 |
|
|
$ |
(0.01 |
) |
Note: amounts may not sum due to
rounding._______________________(1) Represents a goodwill
impairment charge related to the Solar reporting unit in Q1
2023.(2) Represents the change in the fair value of interest rate
swaps not designated as cash flow hedges.(3) Primarily represents
amortization of the customer backlog intangible asset during Q1
2022 related to the ADT Solar Acquisition.(4) Primarily includes
net radio conversion costs.(5) Refer to the Company’s Quarterly
Reports on Form 10-Q and Annual Reports on Form 10-K for further
discussion regarding the computation of diluted weighted-average
shares outstanding of common stock.(6) Calculated as Adjusted Net
Income (Loss) divided by diluted weighted-average shares
outstanding of Common Stock.
Leverage Ratios and Reconciliation to
GAAP Debt to Net Income (Loss) Leverage Ratio
Net Leverage Ratio is calculated as the ratio of
net debt to last twelve months (“LTM”) Adjusted EBITDA. Net debt is
calculated as total debt excluding the Receivables Facility,
including capital leases, minus cash and cash equivalents. Refer to
the discussion on Adjusted EBITDA for descriptions of the
differences between Adjusted EBITDA and net income (loss), which is
the most comparable GAAP measure. We believe Net Leverage Ratio is
a useful measure of the Company's credit position and progress
towards leverage targets. There are material limitations to using
Net Leverage Ratio as the Company may not always be able to use
cash to repay debt on a dollar-for-dollar basis.
Debt to Net Income (Loss) Leverage
Ratio:
(in millions) |
March 31, 2023 |
|
December 31, 2022 |
Total debt (book value) |
$ |
9,840 |
|
|
$ |
9,829 |
|
LTM net income (loss) |
$ |
31 |
|
|
$ |
173 |
|
Debt to net income (loss) leverage ratio |
314.6x |
|
|
56.9x |
|
Net debt and Net Leverage
Ratio:
(in millions) |
March 31, 2023 |
|
December 31, 2022 |
Revolver |
$ |
— |
|
|
$ |
— |
|
First lien term loan |
|
3,323 |
|
|
|
2,730 |
|
First lien notes |
|
4,950 |
|
|
|
5,550 |
|
Receivables facility |
|
374 |
|
|
|
355 |
|
Finance leases |
|
92 |
|
|
|
95 |
|
Other |
|
2 |
|
|
|
2 |
|
Total first lien debt |
$ |
8,741 |
|
|
$ |
8,732 |
|
Second lien notes |
|
1,300 |
|
|
|
1,300 |
|
Total debt(1) |
$ |
10,041 |
|
|
$ |
10,032 |
|
|
|
|
|
Less: |
|
|
|
Cash and cash equivalents |
|
(186 |
) |
|
|
(257 |
) |
Receivables Facility |
|
(374 |
) |
|
|
(355 |
) |
Net debt |
$ |
9,481 |
|
|
$ |
9,420 |
|
|
|
|
|
LTM Adjusted EBITDA |
$ |
2,471 |
|
|
$ |
2,447 |
|
Net leverage ratio |
3.8x |
|
|
3.9x |
|
Note: amounts may not sum due to
rounding_______________________(1) Debt instruments are stated at
face value.
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