ADT Inc. (NYSE: ADT), the most trusted brand in smart home and
small business security, today announced that it has entered into a
definitive agreement to sell its commercial security, fire and life
safety business unit to GTCR, a leading private equity firm, for a
purchase price of $1.6 billion, subject to customary purchase price
adjustments. Proceeds from the sale, which is expected to close in
the fourth quarter of 2023, will be used to reduce debt by $1.5
billion, with cash interest savings expected to offset the impact
of divesting the commercial business.
Strategic rationale
- The transaction supports ADT’s journey to be the premier
provider of smart home and residential solar solutions by
leveraging our strategic differentiators: innovative offerings,
unrivaled safety and premium customer experiences.
- With a stronger financial profile, ADT will be better
positioned to prioritize investments that we believe will drive
profitable, capital-efficient revenue growth for the long
term.
- At the close of the transaction, the Company plans to use the
net proceeds from the transaction for debt reduction, resulting in
a meaningfully lower leverage profile, improved margins and strong
free cash flow generation.
Financial impacts
- Represents an attractive EV/Commercial Adjusted EBITDA multiple
of approximately 11.2X1 including the estimated allocation of
corporate costs.
- Estimated cash interest savings from debt paydown approximately
offsets the impact of divesting the commercial business.
- Upon completion of the sale, ADT plans to use the net after-tax
cash proceeds of approximately $1.5 billion for significant debt
reduction, accelerating long-term leverage goals and improving our
leverage ratio from the current level of 3.7 down to 3.3.
- ADT’s capital allocation priorities remain unchanged; the
Company does not plan to change its quarterly dividend.
Jim DeVries, ADT President and CEO, said, “The decision to
divest ADT’s commercial business is a value-enhancing transaction
that focuses our portfolio on growth opportunities in our consumer
markets. The sale enables ADT to monetize the commercial business
at an attractive valuation and accelerate our debt reduction goals.
With greater financial flexibility, we will be better positioned to
grow through our strategic differentiators and innovative
offerings, including our partnerships with Google and State Farm.
We will continue our journey to be the premier provider of safe,
smart and sustainable solutions that meet the evolved definition of
what safety means to consumers today.”
DeVries continued, “This transaction is mutually beneficial for
ADT and ADT Commercial, which will benefit from GTCR’s support and
expertise, positioning the business to continue providing
best-in-class solutions and services to its customers. We thank the
entire ADT Commercial team for their hard work and look forward to
seeing them grow.”
“ADT Commercial has established itself as an innovative leader
in providing the critical safety services that businesses need to
protect their day-to-day functionality,” said David Donnini,
Managing Director and Head of Business & Consumer Services at
GTCR. “We are very proud to once again partner with the leadership
team of ADT Commercial to continue to invest in the platform and
deliver the solutions its customers have come to expect. ADT has
done a tremendous job in further developing this segment in recent
years and we are excited to help drive the business forward in its
next chapter of growth.”
Transaction detailsUpon closing
of the transaction, ADT expects to receive approximately $1.5
billion in net proceeds, subject to final tax calculations and
purchase price adjustments. ADT plans to use the net after-tax cash
proceeds of the transaction to reduce debt. As adjusted for the
transaction, ADT expects its net leverage ratio to be 3.3, down
from 3.7, currently.
The transaction has been approved by the Company’s Board of
Directors and is expected to close in the fourth quarter of 2023,
subject to customary closing conditions, including regulatory
approvals.
More informationAs previously
announced, the Company will hold a live conference call and webcast
at 10 a.m. ET today to discuss its second quarter financial results
and will at that time provide additional information on the
transaction. Participants may listen 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 Second 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.
Citi and RBC Capital Markets are acting as financial advisors to
ADT. Cravath, Swaine & Moore LLP is acting as legal advisor to
ADT.
(1) EV/Commercial Adjusted EBITDA is a non-GAAP measure. Refer
to the reconciliations that follow for the presentation of the most
comparable GAAP measure along with the GAAP to non-GAAP
reconciliation.
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 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.
ADT contacts: Elizabeth
LandersInvestor Relations elizabethlanders@adt.com 888-238-8525
Paul WisemanMedia Relations
paulwiseman@adt.com561-356-6388
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, the proposed transaction between ADT
and GTCR, the expected timetable for completing the proposed
transaction and the benefits and synergies of the proposed
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; 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
uncertainties as to the timing of the sale of the Commercial
Business and the risk that the transaction may not be completed in
a timely manner or at all; the possibility that any or all of the
conditions to the consummation of the sale of the Commercial
Business may not be satisfied or waived; the effect of the
announcement or pendency of the transaction on ADT’s ability to
retain and hire key personnel and to maintain relationships with
customers, suppliers and other business partners; risks related to
diverting management’s attention from ADT’s ongoing business
operations; uncertainties as to ADT’s ability and the amount of
time necessary to realize the expected benefits of the transaction;
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, including the possibility of future
impairments to the value of goodwill at ADT Solar; risks related to
the various financing arrangements that the Company facilitates for
some ADT Solar customers; 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; 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.
NON-GAAP MEASURES AND RECONCILIATIONS TO GAAP
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.
Adjusted EBITDA and Reconciliation to GAAP
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).
|
Twelve MonthsEnded |
(in millions) |
June 30, 2023 |
Net income (loss) |
$ |
(37 |
) |
Interest expense, net |
|
433 |
|
Income tax expense
(benefit) |
|
(127 |
) |
Depreciation and intangible
asset amortization |
|
1,547 |
|
Amortization of deferred
subscriber acquisition costs |
|
182 |
|
Amortization of deferred
subscriber acquisition revenue |
|
(280 |
) |
Share-based compensation
expense |
|
61 |
|
Merger, restructuring,
integration and other |
|
61 |
|
Goodwill impairment |
|
624 |
|
Loss on extinguishment of
debt |
|
2 |
|
Change in fair value of other
financial instruments |
|
63 |
|
Radio conversion costs,
net |
|
(10 |
) |
Other, net |
|
5 |
|
Adjusted EBITDA |
$ |
2,525 |
|
Commercial Adjusted EBITDA including estimated allocation of
certain corporate costs and Reconciliation to GAAP
Commercial Adjusted EBITDA is our segment profit measure
presented in accordance with ASC 280. We believe the presentation
of Commercial Adjusted EBITDA including the estimated allocation of
certain corporate costs provides useful information to investors
related to the divestiture of the Commercial business. Management
uses this measure to evaluate the benefit from the divestiture.
(in millions) |
|
Twelve MonthsEnded |
|
|
June 30, 2023 |
Purchase Price (EV) |
|
$ |
1,613 |
|
|
|
|
Commercial Adjusted
EBITDA |
|
$ |
158 |
|
Estimated allocation of
corporate costs |
|
|
(14 |
) |
Commercial Adjusted EBITDA including estimated corporate
costs |
|
$ |
144 |
|
|
|
|
EV/Commercial Adjusted
EBITDA |
|
|
10.2x |
|
Impact from the estimated
allocation of corporate costs |
|
|
1x |
|
EV/Commercial Adjusted EBITDA including estimated corporate
costs |
|
|
11.2x |
|
Net Leverage Ratios and Reconciliations to GAAP
Net leverage ratio is calculated as the ratio of net debt to
last twelve months (“LTM”) Adjusted EBITDA. Net leverage ratio
after divestiture is calculated as the ratio of net debt after
divestiture to LTM Adjusted EBITDA excluding Commercial Adjusted
EBITDA.
Net debt is calculated as total debt excluding the Receivables
Facility, including capital leases, minus cash and cash
equivalents. Net debt after divestiture is calculated as net debt
excluding the estimated total debt paydown using the proceeds from
the divestiture of the Commercial business.
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.
(in millions) |
June 30, 2023 |
Total debt (book value) |
$ |
9,671 |
|
LTM net income (loss) |
$ |
(37 |
) |
Debt to net income (loss) ratio |
|
(260.5x |
) |
Debt instruments (face
value): |
|
First lien term loan and term loan A |
|
3,358 |
|
First lien and ADT notes |
|
4,700 |
|
Receivables facility |
|
403 |
|
Finance leases and other |
|
104 |
|
Total first lien debt |
$ |
8,564 |
|
Second lien notes |
|
1,300 |
|
Total debt |
$ |
9,864 |
|
|
|
Less: |
|
Cash and cash equivalents |
|
(146 |
) |
Receivables Facility |
|
(403 |
) |
Net debt |
$ |
9,315 |
|
Less: total debt paydown after
divestiture |
|
(1,500 |
) |
Net debt after divestiture |
$ |
7,815 |
|
|
|
LTM Adjusted EBITDA |
$ |
2,525 |
|
Less: LTM Commercial Segment
Adjusted EBITDA |
|
158 |
|
LTM Adjusted EBITDA excluding Commercial Adjusted
EBITDA |
$ |
2,367 |
|
|
|
LTM Adjusted EBITDA |
$ |
2,525 |
|
Net leverage ratio |
|
3.7x |
|
|
|
|
|
LTM Adjusted EBITDA excluding
Commercial Adjusted EBITDA |
$ |
2,367 |
|
Net leverage ratio after divestiture |
|
3.3x |
|
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