ADT Inc. (NYSE: ADT), the most trusted brand in smart home and
small business security, today reported results for the second
quarter of 2023.
Financial highlights for the second quarter of
2023 are listed below. Variances are on a year-over-year basis
unless otherwise noted.
- Total revenue of
$1.6 billion with end-of-period recurring monthly revenue
(RMR) up 4% or $382 million
- High customer
retention with gross revenue attrition maintaining record low of
12.5%
- Record revenue
payback of 1.9 years
- GAAP net income
of $92 million, or $0.10 per diluted share, down less than
$1 million
- Adjusted net
income of $148 million, or $0.16 per diluted share, up
$98 million
- Adjusted EBITDA
of $651 million, up $54 million
“ADT’s second quarter results underscore the
resiliency and momentum of our business with a record high
recurring monthly revenue balance and customer retention. Our
success reflects the dedication ADT’s employees have with our
customers and is a testament to the strong demand for ADT’s
innovative offerings and premium experiences,” said ADT President
and CEO, Jim DeVries. “The divestiture of ADT’s commercial business
unlocks shareholder value by enhancing cash flows and accelerating
debt reduction goals while sharpening our focus on core
residential, small business and multifamily consumer markets.”
BUSINESS HIGHLIGHTS
Foundation for Growth
- Continued
growth of RMR – The end-of-period RMR balance was $382 million,
representing a 4% increase over the prior year period.
Approximately 75% of total Consumer and Small Business (CSB) and
Commercial revenue was generated from this durable recurring
revenue.
- Maintained
record customer retention and improved revenue payback – With
strong customer satisfaction, trailing 12-month gross customer
revenue attrition was 12.5%, a 20-basis-point improvement versus
the prior year period, and revenue payback ended the second quarter
of 2023 at 1.9 years, reflecting a 0.3x year-over-year
improvement.
- Upgrade of
corporate credit rating – S&P Global Ratings upgraded ADT’s
corporate credit rating to ‘BB-’ from ‘B+’ with a stable rating
outlook in recognition of the Company’s resilient business model
and continued progress towards debt reduction goals.
Innovative Offerings
- ADT Self Setup
and enhanced Google offerings – As part of ADT’s partnership with
Google, the Company nationally sells, installs, and services a full
suite of Google Nest products which seamlessly integrate the
security and protection of ADT with the helpful convenience of
Google Nest. During the second quarter of 2023, the attachment rate
for the Nest Doorbell was approximately 50% and Nest cameras are
currently realizing an 8% increase in cameras per home, helping
drive a 17% increase in residential installation revenue per unit
as compared to the prior year period.
- ADT Home
Security Program for State Farm customers to expand – ADT announced
that its program for State Farm customers plans to expand to up to
13 states by year end 2023. In all program states, new and existing
State Farm homeowners customers can participate in the ADT Home
Security Program to receive ADT home security products and
professional monitoring services at a reduced cost.
- ADT Solar to
offer lease and PPA financing options through SunPower Financial –
ADT Solar entered into an agreement in principle with SunPower
Financial to offer lease and power purchase agreement (PPA)
financing options to new ADT Solar customers seeking greater
flexibility and accessibility in their rooftop solar financing.
SunPower Financial is expected to become the exclusive lessor for
ADT Solar customers seeking an alternative to outright purchases
beginning this year.
Unrivaled Safety
- False alarm
reductions – In the second quarter of 2023, ADT’s patented SMART
Monitoring innovations reduced false alarms by more than 50%,
eliminating over 770,000 unnecessary dispatches by local first
responders – conserving community resources and reducing
environmental impact.
Premium Experience
- ADT Virtual
Tour App – ADT launched its new Virtual Tour App, a mobile-based
tool utilizing augmented reality to enable ADT Solutions Advisors
to help customers visualize how ADT and Google smart home security
products can protect and connect their homes. Virtual storytelling
offers an individualized experience and helps customers see how our
products would look in their home through augmented reality.
Progress on our ESG Journey
- Baltimore
nonprofit Requity partnership – Through our long-term partnership
with Requity, a Baltimore nonprofit that provides vocational
education and workforce development, the company is forging a path
to potential ADT employment for certain Requity students through
mentoring and hosting skills workshops. ADT hosted a workshop for
Requity students this spring focused on interview skills and
troubleshooting.
2023 FINANCIAL OUTLOOK
The Company is revising its financial guidance
for 2023. Total revenue is now projected to be lower than prior
guidance due to the Solar outlook from low installation volume and
efficiency headwinds, partially offset by CSB and Commercial
performance. The Company is maintaining previously issued guidance
on Adjusted EBITDA, Adjusted EPS, Adjusted Free Cash Flow
(including interest rate swaps), and Adjusted Free Cash Flow as we
expect M&S revenue and improved operating margins within CSB
and Commercial to largely offset the profitability and cash flow
impact of Solar underperformance.
As a result of the announced agreement to divest
the commercial business, the commercial business is expected to be
reported as discontinued operations beginning in the third quarter
of 2023. Full year Commercial results are included in guidance,
pending the close of the transaction.
(in millions) |
|
Prior Guidance |
Updated Guidance |
Total Revenue |
|
$6,600 - $6,850 |
$6,300 - $6,500 |
Adjusted EBITDA |
|
$2,525 - $2,625 |
$2,525 - $2,625 |
Adjusted EPS |
|
$0.30 - $0.40 |
$0.30 - $0.40 |
Adjusted Free Cash Flow
(including interest rate swaps) |
|
$600 - $700 |
$600 - $700 |
Adjusted Free Cash Flow |
|
$525 - $625 |
$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 June 30, |
|
Six Months Ended June 30, |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
|
GAAP |
Total revenue |
|
$ |
1,593 |
|
|
$ |
1,601 |
|
|
$ |
3,205 |
|
|
$ |
3,146 |
|
Net income (loss) |
|
$ |
92 |
|
|
$ |
92 |
|
|
$ |
(27 |
) |
|
$ |
143 |
|
Net cash provided by (used
in): |
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
493 |
|
|
$ |
515 |
|
|
$ |
799 |
|
|
$ |
823 |
|
Investing activities |
|
$ |
(319 |
) |
|
$ |
(402 |
) |
|
$ |
(655 |
) |
|
$ |
(807 |
) |
Financing activities |
|
$ |
(217 |
) |
|
$ |
(85 |
) |
|
$ |
(258 |
) |
|
$ |
7 |
|
Net income (loss) per share of
Common Stock - diluted |
|
$ |
0.10 |
|
|
$ |
0.10 |
|
|
$ |
(0.03 |
) |
|
$ |
0.15 |
|
Net income (loss) per share of
Class B Common Stock - diluted |
|
$ |
0.10 |
|
|
$ |
0.10 |
|
|
$ |
(0.03 |
) |
|
$ |
0.15 |
|
|
|
Non-GAAP Measures |
Adjusted EBITDA |
|
$ |
651 |
|
|
$ |
597 |
|
|
$ |
1,276 |
|
|
$ |
1,198 |
|
Adjusted Free Cash Flow |
|
$ |
201 |
|
|
$ |
185 |
|
|
$ |
200 |
|
|
$ |
143 |
|
Adjusted Free Cash Flow
(including interest rate swaps) |
|
$ |
221 |
|
|
$ |
174 |
|
|
$ |
237 |
|
|
$ |
118 |
|
Adjusted Net Income
(Loss) |
|
$ |
148 |
|
|
$ |
50 |
|
|
$ |
255 |
|
|
$ |
43 |
|
Adjusted Diluted Net Income
(Loss) per share |
|
$ |
0.16 |
|
|
$ |
0.06 |
|
|
$ |
0.30 |
|
|
$ |
0.05 |
|
|
|
Other Measures |
Trailing twelve-month revenue
payback |
|
|
|
|
|
1.9 years |
|
2.2 years |
Trailing twelve-month gross
customer revenue attrition |
|
|
|
|
|
|
12.5 |
% |
|
|
12.7 |
% |
End of period RMR |
|
|
|
|
|
$ |
382 |
|
|
$ |
369 |
|
SEGMENT RESULTS (2) |
|
CSB |
|
|
Three Months Ended June 30, |
(in millions) |
|
2023 |
|
2022 |
|
$ Change |
|
% Change |
Monitoring and related services |
|
$ |
1,043 |
|
|
$ |
1,011 |
|
|
$ |
32 |
|
3 |
% |
Security installation,
product, and other |
|
|
125 |
|
|
|
77 |
|
|
|
48 |
|
62 |
% |
Total CSB revenue |
|
$ |
1,168 |
|
|
$ |
1,088 |
|
|
$ |
80 |
|
7 |
% |
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
644 |
|
|
$ |
581 |
|
|
$ |
63 |
|
11 |
% |
Adjusted EBITDA Margin (as a %
of Total CSB Revenue) |
|
|
55 |
% |
|
|
53 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total CSB revenue was $1,168 million for the
second quarter, up 7% 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 11% to $644
million in the second quarter compared to the prior year period.
These improvements were driven by higher M&S revenue from our
record RMR base and improved operating margins. The improvement in
operating margins benefited from execution on our cost reduction
initiatives, proceeds from a legal settlement, and receipts from
Google related to our joint marketing efforts.
Commercial |
|
|
|
Three Months Ended June 30, |
(in millions) |
|
2023 |
|
2022 |
|
$ Change |
|
% Change |
Monitoring and related services |
|
$ |
144 |
|
|
$ |
134 |
|
|
$ |
9 |
|
7 |
% |
Security installation,
product, and other |
|
|
204 |
|
|
|
163 |
|
|
|
41 |
|
25 |
% |
Total Commercial revenue |
|
$ |
348 |
|
|
$ |
297 |
|
|
$ |
50 |
|
17 |
% |
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
45 |
|
|
$ |
31 |
|
|
$ |
14 |
|
43 |
% |
Adjusted EBITDA Margin (as a %
of Total Commercial Revenue) |
|
|
13 |
% |
|
|
11 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial revenue was $348 million for
the second quarter, up 17% versus prior year. Improvements were
driven primarily by an increase in installation volumes as well as
increases in product and service prices.
Commercial Adjusted EBITDA increased 43% to $45
million in the second quarter. These improvements were driven
primarily by higher revenue and improved cost performance, which
delivered EBITDA margin of 13%.
Solar |
|
|
|
Three Months Ended June 30, |
(in millions) |
|
2023 |
|
2022 |
|
$ Change |
|
% Change |
Solar installation, product, and other |
|
$ |
78 |
|
|
$ |
215 |
|
|
$ |
(138 |
) |
|
(64)% |
Total Solar revenue |
|
$ |
78 |
|
|
$ |
215 |
|
|
$ |
(138 |
) |
|
(64)% |
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
(37) |
|
|
$ |
(15) |
|
|
$ |
(23 |
) |
|
(153)% |
Adjusted EBITDA Margin (as a %
of Total Solar Revenue) |
|
|
(48) |
% |
|
|
(7) |
% |
|
|
|
|
Note: M&S
revenue is not applicable to the Solar segment. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Solar revenue for the second quarter was
$78 million, down 64% versus the second quarter of last year. This
performance was driven by lower installations and weaker sales
performance.
Solar Adjusted EBITDA was a $37 million loss for
the second quarter. Adjusted EBITDA was negatively impacted by the
lower revenue discussed above.
During the second quarter, the Company
recognized a non-cash goodwill impairment charge of $181 million
associated with the Solar segment. This charge is a result of
current macroeconomic conditions as well as Solar’s continued
underperformance of operating results relative to expectations in
the second quarter of 2023. This goodwill impairment charge is
excluded from Adjusted EBITDA.
BALANCE SHEET, CASH, AND LIQUIDITY |
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
(in millions) |
|
|
2023 |
|
|
2022 |
|
$ Change |
|
% Change |
|
|
2023 |
|
|
2022 |
|
$ Change |
|
% Change |
Net cash provided by (used in) operating activities |
|
$ |
493 |
|
$ |
515 |
|
$ |
(22 |
) |
|
(4) |
% |
|
$ |
799 |
|
$ |
823 |
|
$ |
(23 |
) |
|
(3) |
% |
Adjusted Free Cash Flow |
|
$ |
201 |
|
$ |
185 |
|
$ |
16 |
|
|
8 |
% |
|
$ |
200 |
|
$ |
143 |
|
$ |
57 |
|
|
40 |
% |
Adjusted Free Cash Flow
(including interest rate swaps) |
|
$ |
221 |
|
$ |
174 |
|
$ |
47 |
|
|
27 |
% |
|
$ |
237 |
|
$ |
118 |
|
$ |
118 |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities during
the second quarter of 2023 was $493 million, down 4% versus the
second quarter of last year, and Adjusted Free Cash Flow including
the benefit of interest rate swaps increased by $47 million versus
the prior year period. During the second quarter, the company had
higher M&S revenue, enhanced operating margins, and lower net
subscriber investments versus the prior year period. These
improvements, which benefited from execution on our cost reduction
initiatives, proceeds from a legal settlement, and receipts from
Google related to our joint marketing efforts, were partially
offset by the performance of our Solar business and higher cash
interest expense (including the impact of interest rate swaps).
The company returned $32 million to shareholders
in dividends during the second quarter of 2023.
On May 2, 2023, the Company redeemed $150
million of the $750 million ADT Notes due 2024 using cash on hand.
On June 15, 2023, the Company used proceeds from its Incremental
Term Loan A and cash on hand to redeem the remaining approximately
$100 million of the ADT Notes due 2023.
ANNOUNCES DIVESTITURE OF COMMERCIAL
BUSINESS
The Company also announced today that it has
entered into an agreement with the intention to divest its
Commercial business for $1.6 billion with net proceeds to be used
for debt reduction. The transaction is expected to close in the
fourth quarter of 2023, subject to regulatory approvals and other
customary closing conditions. Management has provided additional
detail regarding this transaction in a separate release and will
discuss the divestiture on today’s webcast at 10 a.m. ET. A slide
presentation with additional information will be available on the
investor relations website at investor.adt.com.
DIVIDEND DECLARATION
Effective Aug. 8, 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 Sep. 15, 2023. This dividend will be paid on Oct. 4, 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 a.m. ET today to discuss the Company’s second
quarter 2023 results and its intended divestiture of the Commercial
business and to host 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 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.
A slide presentation highlighting the Company’s
results and its intended divestiture of the Commercial business
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
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.
ADT INC. AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF OPERATIONS |
(in millions, except per share data) |
(Unaudited) |
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
2023 |
|
2022 |
|
$ Change |
|
% Change |
|
2023 |
|
2022 |
|
$ Change |
|
% Change |
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monitoring and related services |
|
$ |
1,187 |
|
|
$ |
1,146 |
|
|
$ |
41 |
|
|
4 |
% |
|
$ |
2,360 |
|
|
$ |
2,267 |
|
|
$ |
93 |
|
|
4 |
% |
Security installation, product, and other |
|
|
329 |
|
|
|
240 |
|
|
|
88 |
|
|
37 |
% |
|
|
623 |
|
|
|
472 |
|
|
|
151 |
|
|
32 |
% |
Solar installation, product, and other |
|
|
78 |
|
|
|
215 |
|
|
|
(138 |
) |
|
(64 |
)% |
|
|
222 |
|
|
|
407 |
|
|
|
(185 |
) |
|
(45 |
)% |
Total revenue |
|
|
1,593 |
|
|
|
1,601 |
|
|
|
(8 |
) |
|
— |
% |
|
|
3,205 |
|
|
|
3,146 |
|
|
|
60 |
|
|
(32 |
)% |
Cost of revenue
(exclusive of depreciation and amortization shown separately
below): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monitoring and related services |
|
|
225 |
|
|
|
233 |
|
|
|
(8 |
) |
|
(3 |
)% |
|
|
471 |
|
|
|
468 |
|
|
|
3 |
|
|
1 |
% |
Security installation, product, and other |
|
|
194 |
|
|
|
142 |
|
|
|
52 |
|
|
36 |
% |
|
|
363 |
|
|
|
281 |
|
|
|
82 |
|
|
29 |
% |
Solar installation, product, and other |
|
|
65 |
|
|
|
133 |
|
|
|
(68 |
) |
|
(51 |
)% |
|
|
163 |
|
|
|
268 |
|
|
|
(105 |
) |
|
(39 |
)% |
Total cost of revenue |
|
|
484 |
|
|
|
508 |
|
|
|
(24 |
) |
|
(5 |
)% |
|
|
998 |
|
|
|
1,018 |
|
|
|
(20 |
) |
|
(2 |
)% |
Selling, general, and
administrative expenses |
|
|
442 |
|
|
|
487 |
|
|
|
(45 |
) |
|
(9 |
)% |
|
|
904 |
|
|
|
969 |
|
|
|
(65 |
) |
|
(7 |
)% |
Depreciation and intangible asset
amortization |
|
|
346 |
|
|
|
399 |
|
|
|
(54 |
) |
|
(13 |
)% |
|
|
729 |
|
|
|
876 |
|
|
|
(147 |
) |
|
(17 |
)% |
Merger, restructuring,
integration, and other |
|
|
18 |
|
|
|
(4 |
) |
|
|
22 |
|
|
N/M |
|
|
36 |
|
|
|
(3 |
) |
|
|
39 |
|
|
N/M |
Goodwill impairment |
|
|
181 |
|
|
|
— |
|
|
|
181 |
|
|
— |
% |
|
|
423 |
|
|
|
— |
|
|
|
423 |
|
|
N/M |
Operating income (loss) |
|
|
123 |
|
|
|
211 |
|
|
|
(88 |
) |
|
(42 |
)% |
|
|
116 |
|
|
|
287 |
|
|
|
(170 |
) |
|
(59 |
)% |
Interest expense, net |
|
|
(84 |
) |
|
|
(82 |
) |
|
|
(3 |
) |
|
3 |
% |
|
|
(256 |
) |
|
|
(88 |
) |
|
|
(168 |
) |
|
N/M |
Other income (expense) |
|
|
1 |
|
|
|
1 |
|
|
|
(1 |
) |
|
(65 |
)% |
|
|
(1 |
) |
|
|
3 |
|
|
|
(4 |
) |
|
N/M |
Income (loss) before income taxes and equity in net
earnings (losses) of equity method investee |
|
|
39 |
|
|
|
130 |
|
|
|
(92 |
) |
|
(70 |
)% |
|
|
(140 |
) |
|
|
202 |
|
|
|
(342 |
) |
|
N/M |
Income tax benefit (expense) |
|
|
55 |
|
|
|
(38 |
) |
|
|
93 |
|
|
N/M |
|
|
118 |
|
|
|
(57 |
) |
|
|
175 |
|
|
N/M |
Income (loss) before equity in net earnings (losses) of
equity method investee |
|
|
94 |
|
|
|
92 |
|
|
|
1 |
|
|
2 |
% |
|
|
(22 |
) |
|
|
144 |
|
|
|
(166 |
) |
|
N/M |
Equity in net earnings (losses)
of equity method investee |
|
|
(2 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
|
N/M |
|
|
(4 |
) |
|
|
(1 |
) |
|
|
(3 |
) |
|
N/M |
Net income (loss) |
|
$ |
92 |
|
|
$ |
92 |
|
|
$ |
1 |
|
|
1 |
% |
|
$ |
(27 |
) |
|
$ |
143 |
|
|
$ |
(170 |
) |
|
N/M |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per
share - basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
$ |
0.10 |
|
|
$ |
0.10 |
|
|
|
|
|
|
$ |
(0.03 |
) |
|
$ |
0.16 |
|
|
|
|
|
Class B Common Stock |
|
$ |
0.10 |
|
|
$ |
0.10 |
|
|
|
|
|
|
$ |
(0.03 |
) |
|
$ |
0.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
shares outstanding - basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
858 |
|
|
|
848 |
|
|
|
|
|
|
|
856 |
|
|
|
846 |
|
|
|
|
|
Class B Common Stock |
|
|
55 |
|
|
|
55 |
|
|
|
|
|
|
|
55 |
|
|
|
55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per
share - diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
$ |
0.10 |
|
|
$ |
0.10 |
|
|
|
|
|
|
$ |
(0.03 |
) |
|
$ |
0.15 |
|
|
|
|
|
Class B Common Stock |
|
$ |
0.10 |
|
|
$ |
0.10 |
|
|
|
|
|
|
$ |
(0.03 |
) |
|
$ |
0.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
shares outstanding - diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
917 |
|
|
|
911 |
|
|
|
|
|
|
|
856 |
|
|
|
911 |
|
|
|
|
|
Class B Common Stock |
|
|
55 |
|
|
|
55 |
|
|
|
|
|
|
|
55 |
|
|
|
55 |
|
|
|
|
|
Note: amounts may not sum due to rounding
ADT INC. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED BALANCE SHEETS |
(in millions) |
(Unaudited) |
|
|
June 30, 2023 |
|
December 31, 2022 |
Assets |
|
|
|
Current assets: |
|
|
|
Cash and cash equivalents |
$ |
146 |
|
$ |
257 |
Restricted cash and restricted cash equivalents |
|
114 |
|
|
116 |
Accounts receivable, net |
|
622 |
|
|
597 |
Inventories, net |
|
308 |
|
|
329 |
Work-in-progress |
|
63 |
|
|
81 |
Prepaid expenses and other current assets |
|
302 |
|
|
341 |
Total current assets |
|
1,555 |
|
|
1,722 |
Property and equipment, net |
|
341 |
|
|
376 |
Subscriber system assets,
net |
|
3,103 |
|
|
3,061 |
Intangible assets, net |
|
5,004 |
|
|
5,092 |
Goodwill |
|
5,344 |
|
|
5,767 |
Deferred subscriber acquisition
costs, net |
|
1,169 |
|
|
1,080 |
Other assets |
|
818 |
|
|
724 |
Total assets |
$ |
17,334 |
|
$ |
17,821 |
|
|
|
|
Liabilities and
stockholders' equity |
|
|
|
Current liabilities: |
|
|
|
Current maturities of long-term debt |
$ |
836 |
|
$ |
872 |
Accounts payable |
|
375 |
|
|
487 |
Deferred revenue |
|
386 |
|
|
403 |
Accrued expenses and other current liabilities |
|
722 |
|
|
900 |
Total current liabilities |
|
2,319 |
|
|
2,661 |
Long-term debt |
|
8,835 |
|
|
8,957 |
Deferred subscriber acquisition
revenue |
|
1,826 |
|
|
1,645 |
Deferred tax liabilities |
|
764 |
|
|
893 |
Other liabilities |
|
273 |
|
|
272 |
Total liabilities |
|
14,016 |
|
|
14,428 |
|
|
|
|
Total stockholders' equity |
|
3,318 |
|
|
3,393 |
Total liabilities and stockholders' equity |
$ |
17,334 |
|
$ |
17,821 |
|
|
|
|
|
|
Note: amounts may not sum due to rounding
ADT INC. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS |
(in millions) |
(Unaudited) |
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
Cash flows from operating
activities: |
|
|
|
|
|
|
|
Net income (loss) |
$ |
92 |
|
|
$ |
92 |
|
|
$ |
(27 |
) |
|
$ |
143 |
|
Adjustments to reconcile net
income (loss) to net cash provided by (used in) operating
activities: |
|
|
|
|
|
|
|
Depreciation and intangible asset amortization |
|
346 |
|
|
|
399 |
|
|
|
729 |
|
|
|
876 |
|
Amortization of deferred subscriber acquisition costs |
|
48 |
|
|
|
39 |
|
|
|
95 |
|
|
|
76 |
|
Amortization of deferred subscriber acquisition revenue |
|
(76 |
) |
|
|
(58 |
) |
|
|
(148 |
) |
|
|
(112 |
) |
Share-based compensation expense |
|
12 |
|
|
|
17 |
|
|
|
27 |
|
|
|
33 |
|
Deferred income taxes |
|
(61 |
) |
|
|
34 |
|
|
|
(131 |
) |
|
|
50 |
|
Provision for losses on receivables and inventory |
|
41 |
|
|
|
27 |
|
|
|
67 |
|
|
|
46 |
|
Goodwill, intangible, and other asset impairments |
|
185 |
|
|
|
— |
|
|
|
428 |
|
|
|
— |
|
Unrealized (gain) loss on interest rate swap contracts |
|
(55 |
) |
|
|
(59 |
) |
|
|
(22 |
) |
|
|
(205 |
) |
Other non-cash items, net |
|
24 |
|
|
|
13 |
|
|
|
53 |
|
|
|
78 |
|
Changes in operating assets and
liabilities, net of effects of acquisitions: |
|
|
|
|
|
|
|
Deferred subscriber acquisition costs |
|
(98 |
) |
|
|
(103 |
) |
|
|
(185 |
) |
|
|
(196 |
) |
Deferred subscriber acquisition revenue |
|
75 |
|
|
|
85 |
|
|
|
148 |
|
|
|
166 |
|
Other, net |
|
(40 |
) |
|
|
29 |
|
|
|
(235 |
) |
|
|
(134 |
) |
Net cash provided by (used in) operating activities |
|
493 |
|
|
|
515 |
|
|
|
799 |
|
|
|
823 |
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities: |
|
|
|
|
|
|
|
Dealer generated customer
accounts and bulk account purchases |
|
(136 |
) |
|
|
(157 |
) |
|
|
(252 |
) |
|
|
(342 |
) |
Subscriber system asset
expenditures |
|
(161 |
) |
|
|
(196 |
) |
|
|
(320 |
) |
|
|
(379 |
) |
Purchases of property and
equipment |
|
(30 |
) |
|
|
(49 |
) |
|
|
(89 |
) |
|
|
(88 |
) |
Acquisition of businesses, net of
cash acquired |
|
— |
|
|
|
(13 |
) |
|
|
— |
|
|
|
(13 |
) |
Proceeds from sale of business,
net of cash sold |
|
— |
|
|
|
27 |
|
|
|
— |
|
|
|
27 |
|
Other investing, net |
|
9 |
|
|
|
(14 |
) |
|
|
7 |
|
|
|
(13 |
) |
Net cash provided by (used in) investing activities |
|
(319 |
) |
|
|
(402 |
) |
|
|
(655 |
) |
|
|
(807 |
) |
|
|
|
|
|
|
|
|
Cash flows from financing
activities: |
|
|
|
|
|
|
|
Proceeds from long-term
borrowings |
|
50 |
|
|
|
100 |
|
|
|
650 |
|
|
|
380 |
|
Proceeds from receivables
facility |
|
76 |
|
|
|
93 |
|
|
|
140 |
|
|
|
140 |
|
Proceeds (payments) from interest
rate swaps |
|
20 |
|
|
|
(11 |
) |
|
|
36 |
|
|
|
(25 |
) |
Repayment of long-term
borrowings, including call premiums |
|
(266 |
) |
|
|
(198 |
) |
|
|
(873 |
) |
|
|
(340 |
) |
Repayment of receivables
facility |
|
(48 |
) |
|
|
(26 |
) |
|
|
(92 |
) |
|
|
(47 |
) |
Dividends on common stock |
|
(32 |
) |
|
|
(32 |
) |
|
|
(64 |
) |
|
|
(63 |
) |
Payments on finance leases |
|
(10 |
) |
|
|
(11 |
) |
|
|
(21 |
) |
|
|
(22 |
) |
Other financing, net |
|
(7 |
) |
|
|
1 |
|
|
|
(33 |
) |
|
|
(15 |
) |
Net cash provided by (used in) financing activities |
|
(217 |
) |
|
|
(85 |
) |
|
|
(258 |
) |
|
|
7 |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
and restricted cash and restricted cash equivalents: |
|
|
|
|
|
|
|
Net increase (decrease) |
|
(43 |
) |
|
|
27 |
|
|
|
(113 |
) |
|
|
22 |
|
Beginning balance |
|
304 |
|
|
|
28 |
|
|
|
374 |
|
|
|
33 |
|
Ending balance |
$ |
261 |
|
|
$ |
56 |
|
|
$ |
261 |
|
|
$ |
56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: amounts may not sum due to rounding
ADT INC. AND SUBSIDIARIES |
SEGMENT INFORMATION |
(in millions) |
(Unaudited) |
|
Revenue by Segment |
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
(in millions) |
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
CSB: |
|
|
|
|
|
|
|
|
Monitoring and related services |
|
$ |
1,043 |
|
$ |
1,011 |
|
$ |
2,072 |
|
$ |
2,004 |
Security installation, product, and other |
|
|
125 |
|
|
77 |
|
|
229 |
|
|
147 |
Total CSB |
|
$ |
1,168 |
|
$ |
1,088 |
|
|
2,301 |
|
|
2,151 |
|
|
|
|
|
|
|
|
|
Commercial: |
|
|
|
|
|
|
|
|
Monitoring and related services |
|
$ |
144 |
|
$ |
134 |
|
|
288 |
|
|
263 |
Security installation, product, and other |
|
|
204 |
|
|
163 |
|
|
394 |
|
|
325 |
Total Commercial |
|
$ |
348 |
|
$ |
297 |
|
|
683 |
|
|
588 |
|
|
|
|
|
|
|
|
|
Solar: |
|
|
|
|
|
|
|
|
Solar installation, product, and other |
|
$ |
78 |
|
$ |
215 |
|
|
222 |
|
|
407 |
Total Solar |
|
$ |
78 |
|
$ |
215 |
|
|
222 |
|
|
407 |
|
|
|
|
|
|
|
|
|
Total Revenue |
|
$ |
1,593 |
|
$ |
1,601 |
|
$ |
3,205 |
|
$ |
3,146 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA by Segment |
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
(in millions) |
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
CSB |
|
$ |
644 |
|
|
$ |
581 |
|
|
$ |
1,238 |
|
|
$ |
1,141 |
Commercial |
|
|
45 |
|
|
|
31 |
|
|
|
86 |
|
|
|
55 |
Solar |
|
|
(37 |
) |
|
|
(15 |
) |
|
|
(48 |
) |
|
|
2 |
Total |
|
$ |
651 |
|
|
$ |
597 |
|
|
$ |
1,276 |
|
|
$ |
1,198 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA Margin by Segment |
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
CSB (as a % of Total CSB Revenue) |
|
55 |
% |
|
53 |
% |
|
54 |
% |
|
53 |
% |
Commercial (as a % of Total Commercial Revenue) |
|
13 |
% |
|
11 |
% |
|
13 |
% |
|
9 |
% |
Solar (as a % of Total Solar Revenue) |
|
(48) |
% |
|
(7) |
% |
|
(22) |
% |
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
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 June 30, |
|
Six Months Ended June 30, |
(in millions) |
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
Net income
(loss) |
$ |
92 |
|
|
$ |
92 |
|
|
$ |
(27 |
) |
|
$ |
143 |
|
Interest expense, net |
|
84 |
|
|
|
82 |
|
|
|
256 |
|
|
|
88 |
|
Income tax expense
(benefit) |
|
(55 |
) |
|
|
38 |
|
|
|
(118 |
) |
|
|
57 |
|
Depreciation and intangible
asset amortization |
|
346 |
|
|
|
399 |
|
|
|
729 |
|
|
|
876 |
|
Amortization of deferred
subscriber acquisition costs |
|
48 |
|
|
|
39 |
|
|
|
95 |
|
|
|
76 |
|
Amortization of deferred
subscriber acquisition revenue |
|
(76 |
) |
|
|
(58 |
) |
|
|
(148 |
) |
|
|
(112 |
) |
Share-based compensation
expense |
|
12 |
|
|
|
17 |
|
|
|
27 |
|
|
|
33 |
|
Merger, restructuring,
integration and other(1) |
|
18 |
|
|
|
(4 |
) |
|
|
36 |
|
|
|
(3 |
) |
Goodwill impairment(2) |
|
181 |
|
|
|
— |
|
|
|
423 |
|
|
|
— |
|
Acquisition-related
adjustments(3) |
|
1 |
|
|
|
1 |
|
|
|
3 |
|
|
|
38 |
|
Other, net(4) |
|
— |
|
|
|
(8 |
) |
|
|
— |
|
|
|
3 |
|
Adjusted EBITDA |
$ |
651 |
|
|
$ |
597 |
|
|
$ |
1,276 |
|
|
$ |
1,198 |
|
|
|
|
|
|
|
|
|
Net income (loss) to total
revenue ratio |
|
6 |
% |
|
|
6 |
% |
|
(1)% |
|
|
5 |
% |
Adjusted EBITDA Margin(as
percentage of Total Revenue) |
|
41 |
% |
|
|
37 |
% |
|
|
40 |
% |
|
|
38 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: amounts may not sum due to
rounding_______________________
(1) |
During 2023, includes restructuring costs primarily related to
certain facility exits, as well as integration and third-party
costs related to the strategic optimization of the Solar business
operations following the ADT Solar acquisition. |
(2) |
During 2023, represents
impairment charges associated with our Solar reporting unit. |
(3) |
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. |
(4) |
During 2022, primarily includes a
gain on sale of a business of $10 million in Q2 2022. |
|
|
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 June 30, |
|
Six Months Ended June 30, |
(in millions) |
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
Net cash provided by
(used in): |
|
|
|
|
|
|
|
Operating activities |
$ |
493 |
|
|
$ |
515 |
|
|
$ |
799 |
|
|
$ |
823 |
|
Investing activities |
$ |
(319 |
) |
|
$ |
(402 |
) |
|
$ |
(655 |
) |
|
$ |
(807 |
) |
Financing activities |
$ |
(217 |
) |
|
$ |
(85 |
) |
|
$ |
(258 |
) |
|
$ |
7 |
|
|
|
|
|
|
|
|
|
Net cash provided by
(used in) operating activities |
$ |
493 |
|
|
$ |
515 |
|
|
$ |
799 |
|
|
$ |
823 |
|
Dealer generated customer
accounts and bulk account purchases |
|
(136 |
) |
|
|
(157 |
) |
|
|
(252 |
) |
|
|
(342 |
) |
Subscriber system asset
expenditures |
|
(161 |
) |
|
|
(196 |
) |
|
|
(320 |
) |
|
|
(379 |
) |
Purchases of property and
equipment |
|
(30 |
) |
|
|
(49 |
) |
|
|
(89 |
) |
|
|
(88 |
) |
Free Cash Flow |
|
165 |
|
|
|
112 |
|
|
|
138 |
|
|
|
15 |
|
Net proceeds from receivables
facility |
|
28 |
|
|
|
67 |
|
|
|
48 |
|
|
|
93 |
|
Financing and consent
fees |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Restructuring and integration
payments(1) |
|
7 |
|
|
|
3 |
|
|
|
14 |
|
|
|
6 |
|
Integration-related capital
expenditures |
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
1 |
|
Radio conversion costs,
net |
|
(1 |
) |
|
|
— |
|
|
|
(3 |
) |
|
|
12 |
|
Other, net(2) |
|
1 |
|
|
|
3 |
|
|
|
3 |
|
|
|
16 |
|
Adjusted Free Cash Flow |
$ |
201 |
|
|
$ |
185 |
|
|
$ |
200 |
|
|
$ |
143 |
|
Interest rate swaps presented
within financing activities(3) |
|
20 |
|
|
|
(11 |
) |
|
|
36 |
|
|
|
(25 |
) |
Adjusted Free Cash Flow including interest rate
swaps |
$ |
221 |
|
|
$ |
174 |
|
|
$ |
237 |
|
|
$ |
118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. |
(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 June 30, |
|
Six Months Ended June 30, |
(in millions, except per share data) |
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
Net income
(loss) |
$ |
92 |
|
|
$ |
92 |
|
|
$ |
(27 |
) |
|
$ |
143 |
|
Merger, restructuring,
integration, and other(1) |
|
18 |
|
|
|
(4 |
) |
|
|
36 |
|
|
|
(3 |
) |
Goodwill impairment(1) |
|
181 |
|
|
|
— |
|
|
|
423 |
|
|
|
— |
|
Share-based compensation
expense |
|
12 |
|
|
|
17 |
|
|
|
27 |
|
|
|
33 |
|
Unrealized (gain) loss on
interest rate swaps(2) |
|
(55 |
) |
|
|
(59 |
) |
|
|
(22 |
) |
|
|
(205 |
) |
Acquisition-related
adjustments(1) |
|
1 |
|
|
|
1 |
|
|
|
3 |
|
|
|
38 |
|
Other, net(1) |
|
— |
|
|
|
(8 |
) |
|
|
— |
|
|
|
3 |
|
Tax impact on
adjustments(3) |
|
(101 |
) |
|
|
12 |
|
|
|
(185 |
) |
|
|
34 |
|
Adjusted Net Income (Loss) |
$ |
148 |
|
|
$ |
50 |
|
|
$ |
255 |
|
|
$ |
43 |
|
|
|
|
|
|
|
|
|
Weighted-average
shares outstanding -
diluted(4): |
|
|
|
|
|
|
|
Common Stock |
|
917 |
|
|
|
911 |
|
|
|
856 |
|
|
|
911 |
|
Class B Common Stock |
|
55 |
|
|
|
55 |
|
|
|
55 |
|
|
|
55 |
|
|
|
|
|
|
|
|
|
Net income (loss) per
share - diluted: |
|
|
|
|
|
|
|
Common Stock |
$ |
0.10 |
|
|
$ |
0.10 |
|
|
$ |
(0.03 |
) |
|
$ |
0.15 |
|
Class B Common Stock |
$ |
0.10 |
|
|
$ |
0.10 |
|
|
$ |
(0.03 |
) |
|
$ |
0.15 |
|
|
|
|
|
|
|
|
|
Adjusted Diluted Net
Income (Loss) per share(5) |
$ |
0.16 |
|
|
$ |
0.06 |
|
|
$ |
0.30 |
|
|
$ |
0.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: amounts may not sum due to
rounding._______________________
(1) |
Refer to the footnotes to the reconciliation of Adjusted EBITDA to
net income (loss). |
(2) |
Represents the change in the fair
value of interest rate swaps not designated as cash flow
hedges. |
(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 on Form 10-K for further
discussion regarding the computation of diluted weighted-average
shares outstanding of common stock. |
(5) |
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) |
June 30, 2023 |
|
December 31, 2022 |
Total debt (book value) |
$ |
9,671 |
|
|
$ |
9,829 |
LTM net income (loss) |
$ |
(37 |
) |
|
$ |
133 |
Debt to net income (loss) ratio |
|
(260.5x) |
|
|
|
74.1x |
|
|
|
|
Net debt
and Net Leverage Ratio: |
|
(in millions) |
June 30, 2023 |
|
December 31, 2022 |
Debt instruments (face
value): |
|
|
|
First lien term loan and term loan A |
|
3,358 |
|
|
|
2,730 |
|
First lien and ADT notes |
|
4,700 |
|
|
|
5,550 |
|
Receivables facility |
|
403 |
|
|
|
355 |
|
Finance leases |
|
103 |
|
|
|
95 |
|
Other |
|
1 |
|
|
|
2 |
|
Total first lien debt |
$ |
8,564 |
|
|
$ |
8,732 |
|
Second lien notes |
|
1,300 |
|
|
|
1,300 |
|
Total debt |
$ |
9,864 |
|
|
$ |
10,032 |
|
|
|
|
|
Less: |
|
|
|
Cash and cash equivalents |
|
(146 |
) |
|
|
(257 |
) |
Receivables Facility |
|
(403 |
) |
|
|
(355 |
) |
Net debt |
$ |
9,315 |
|
|
$ |
9,420 |
|
|
|
|
|
LTM Adjusted EBITDA |
$ |
2,525 |
|
|
$ |
2,447 |
|
Net leverage ratio |
3.7x |
|
3.9x |
Note: amounts may not sum due to rounding
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