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Description of Business and Summary of Significant Accounting Policies | 12 Months Ended
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Dec. 31, 2023
Accounting Policies [Abstract] |
Description of Business and Summary of Significant Accounting Policies | DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business and Organization ADT Inc., together with its wholly-owned subsidiaries (collectively, the “Company”), is a leading provider of security, interactive, and smart home solutions serving consumer and small business customers in the United States (“U.S.”). As discussed below, on October 2, 2023, the Company divested its Commercial Business (as defined below), which provided security and other solutions to commercial customers; and in January 2024, the Company announced its exit from the residential solar business, which provided residential solar and energy storage solutions since the acquisition of ADT Solar in 2021 (the “ADT Solar Acquisition”). The Company primarily conducts business under the ADT brand name. ADT Inc. was incorporated in the State of Delaware in May 2015 as a holding company with no assets or liabilities. In July 2015, the Company acquired Protection One, Inc. and ASG Intermediate Holding Corp. (collectively, the “Formation Transactions”), which were instrumental in the commencement of the Company’s operations. In May 2016, the Company acquired The ADT Security Corporation (formerly named The ADT Corporation) (“The ADT Corporation”) (the “ADT Acquisition”). The Company is majority-owned by Prime Security Services TopCo (ML), L.P., which is majority-owned by Prime Security Services TopCo Parent, L.P. (“Ultimate Parent”). Ultimate Parent is ultimately majority-owned by Apollo Investment Fund VIII, L.P. and its related funds that are directly or indirectly managed by affiliates of Apollo Global Management, Inc. (together with its subsidiaries and affiliates, “Apollo” or the “Sponsor”). In January 2018, the Company completed an initial public offering (“IPO”) and its common stock, par value of $0.01 per share (“Common Stock”), began trading on the New York Stock Exchange under the symbol “ADT.” Basis of Presentation The consolidated financial statements have been prepared in U.S. dollars in accordance with generally accepted accounting principles in the United States of America (“GAAP”). The financial statements included herein comprise the consolidated results of ADT Inc. and its wholly-owned subsidiaries. The results of companies acquired are included from the effective date of each acquisition; and all intercompany transactions have been eliminated. The Company uses the equity method of accounting to account for an investment in which it has the ability to exercise significant influence but does not control. This investment was disposed of during 2023. As discussed below under the heading “Commercial Divestiture,” beginning in the third quarter of 2023, the Company presented its Commercial Business as a discontinued operation. Certain prior period amounts have been reclassified to conform with the current period presentation. Commercial Divestiture On August 7, 2023, ADT, Iris Buyer LLC, a Delaware limited liability company and affiliate of GTCR LLC (“GTCR”), and, solely for certain purposes set forth in the Commercial Purchase Agreement (as defined below), Fire & Security Holdings, LLC (“F&S Holdings”), a Delaware limited liability company and an indirect, wholly-owned subsidiary of ADT, entered into an Equity Purchase Agreement (the “Commercial Purchase Agreement”) pursuant to which GTCR agreed to acquire all of the issued and outstanding equity interests of F&S Holdings, which directly or indirectly held all of the issued and outstanding equity interests in the subsidiaries of ADT that operated ADT’s commercial business (the “Commercial Business”) (the “Commercial Divestiture”). On October 2, 2023, the Company completed the Commercial Divestiture for a total purchase price of approximately $1,613 million in cash, subject to customary post-closing adjustments, and received net proceeds of approximately $1,585 million, excluding transaction costs of $22 million. Beginning in the third quarter of 2023, the Company presented its Commercial Business as a discontinued operation as the Commercial Divestiture met all of the held for sale criteria for the disposal group and represented a strategic shift that has and will continue to have a major effect on the Company’s operations and financial statements. The change is reflected in all periods presented. Additionally, the cash flows and comprehensive income (loss) of the Commercial Business have not been segregated and are included in the Consolidated Statements of Cash Flows and Consolidated Statements of Comprehensive Income (Loss), respectively, for all periods presented. Unless otherwise noted, amounts and disclosures throughout these Notes to Consolidated Financial Statements relate to the Company’s continuing operations. Refer to Note 5 “Divestitures” for additional information. ADT Solar As previously disclosed, in November 2023, the Company announced a plan to streamline the solar business to focus on the top performing markets and rationalize the overhead and infrastructure of the business. As part of this plan, the Company closed a significant number of branches that operated the solar business along with making associated headcount reductions. On January 19, 2024, after a strategic review of the business and continued macroeconomic and industry pressures, the Company’s board of directors (the “Board of Directors”) approved a plan to fully exit the residential solar business, which may include the transition of components of the business to other parties (the “ADT Solar Exit”). The ADT Solar Exit is expected to be completed during 2024. Use of Estimates The preparation of the consolidated financial statements in accordance with GAAP requires the Company to select accounting policies and make estimates that affect amounts reported in the consolidated financial statements and the accompanying notes. The Company’s estimates are based on the relevant information available at the end of each period. Actual results could differ materially from these estimates under different assumptions or market conditions. Segments The Company has historically reported results for three operating and reportable segments organized based on customer type: Consumer and Small Business (“CSB”), Commercial, and Solar. As a result of the Commercial Divestiture, results of the Commercial Business are classified as discontinued operations and thus excluded from both continuing operations and segment results for all periods presented. Accordingly, the Company reports its results in two operating and reportable segments, CSB and Solar, organized based on customer type, with the change reflected in all periods presented. The Company’s segments are based on the manner in which the Company’s Chief Executive Officer, who is the chief operating decision maker (the “CODM”), evaluates performance and makes decisions about how to allocate resources. • CSB - The CSB segment primarily includes the sale, installation, servicing, and monitoring of integrated security and automation systems and other related offerings to owners and renters of residential properties, small business operators, and other individual consumers, as well as general corporate costs and other income and expense items not included in another segment. • Solar - The Solar segment primarily includes the sale and installation of solar systems and related solutions and services to residential homeowners who purchase solar and energy storage solutions, energy efficiency upgrades, and roofing services, as well as certain dedicated corporate and other costs. Refer to Note 3 “Segment Information” for additional information on the Company’s segments. Accounting Pronouncements Recently Adopted Accounting Pronouncements Vintage Disclosures for Financing Receivables - ASU 2022-02, Financial Instruments — Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, requires reporting entities to disclose current-period gross write-offs by year of origination for financing receivables, among other requirements. This disclosure-only guidance became effective January 1, 2023. The impact to the Company’s consolidated financial statements was not material. Supplier Finance Program Obligations - ASU 2022-04, Liabilities — Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations, requires that a reporting entity who is a buyer in a supplier finance program disclose qualitative and quantitative information about its supplier finance programs, including a roll-forward of the obligations. The Company adopted this guidance effective January 1, 2023, except the roll-forward requirement, which will be adopted effective January 1, 2024. The Company will apply the roll-forward guidance prospectively. The Company does not currently have any material supplier finance programs. Recently Issued Accounting Pronouncements Fair Value of Equity Investments - ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, states that an entity should not consider the contractual sale restriction when measuring the equity security’s fair value and introduces new disclosure requirements related to such equity securities. This guidance will be adopted effective January 1, 2024, and will be applied prospectively. The Company is currently evaluating the impact of this guidance. Disclosure Improvements - ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative, represents changes to clarify or improve disclosure and presentation requirements of a variety of topics. The effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. The Company is currently evaluating the potential impact of this guidance on its financial statements and disclosures. Segment Reporting - ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, improves reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. In addition, the guidance, among other requirements, enhances interim disclosures, clarifies circumstances in which an entity can disclose multiple segment measures of profit or loss, and provides new segment disclosure requirements for entities with a single reportable segment. The amendments in this guidance are effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. This guidance should be applied retrospectively to all periods presented. Early adoption is permitted. The Company is currently evaluating the impact of this guidance. Income Taxes - ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, focuses on improvements to income tax disclosures, primarily related to the rate reconciliation and income tax paid information. In addition, the update includes certain other amendments to improve the effectiveness of income tax disclosures. The guidance is effective for annual periods beginning after December 15, 2024, and should be applied prospectively, with retrospective application also a permitted option. Early adoption is permitted. The Company is currently evaluating the impact of this guidance. Significant Accounting Policies Information on select accounting policies and methods not discussed below are included in the respective footnotes that follow. Cash and Cash Equivalents and Restricted Cash and Restricted Cash Equivalents All highly liquid investments with original maturities of three months or less from the time of purchase are considered to be cash equivalents. Restricted cash and restricted cash equivalents are restricted for a specific purpose and cannot be included in the general cash and cash equivalents account. The following table reconciles the amounts below reported in the Consolidated Balance Sheets to the total of the same such amounts shown in the Consolidated Statements of Cash Flows:
| Years Ended December 31,
(in thousands) | 2023 |  | 2022 |  | 2021
Cash and cash equivalents | $ | 14,621 |  |  | $ | 257,223 |  |  | $ | 24,453 |
Restricted cash and restricted cash equivalents | 115,329 |  |  | 116,357 |  |  | 8,824 |
Ending balance | $ | 129,950 |  |  | $ | 373,580 |  |  | $ | 33,277 |
For 2023 and 2022, restricted cash and restricted cash equivalents includes funds received, net of payments, from State Farm Fire & Casualty Company (“State Farm”) (the “Opportunity Fund”), including accrued interest, in connection with the State Farm Strategic Investment (as defined and discussed in Note 11 “Equity”). Amounts within the Opportunity Fund are restricted for certain qualifying spend in accordance with the development agreement between State Farm and the Company (the “State Farm Development Agreement”). Use of the funds must be agreed to by State Farm and the Company. Supplementary Cash Flow Information The following table summarizes supplementary cash flow information and material non-cash investing and financing transactions, excluding leases (refer to Note 15 “Leases”):
| Years Ended December 31,
(in thousands) | 2023 |  | 2022 |  | 2021
Interest paid, net of interest income received(1) | $ | 522,775 |  |  | $ | 470,947 |  |  | $ | 512,628 |
Payments (refunds) on income taxes, net | $ | 60,296 |  |  | $ | 22,654 |  |  | $ | 1,877 |
Issuance of shares for acquisition of businesses(2) | $ | — |  |  | $ | 55,485 |  |  | $ | 528,503 |
Contingent forward purchase contract(3) | $ | — |  |  | $ | 41,938 |  |  | $ | — |
___________________ (1)Includes finance leases and interest rate swaps. Refer to Note 9 “Derivative Financial Instruments.” (2)2021 relates to the ADT Solar Acquisition and 2022 includes $40 million related to the Delayed Shares (as defined and discussed in Note 4 “Acquisitions”) as a result of the ADT Solar Acquisition. (3)During 2022, the Company recorded a reduction to additional paid in capital as a result of the contingent forward purchase contract in connection with the Tender Offer (as defined and discussed in Note 11 “Equity”). The proceeds and repayments of long-term debt on the Consolidated Statements of Cash Flows include the impact of $230 million from the refinancing of the First Lien Term Loan due 2026 with the First Lien Term Loan due 2030 (as defined and discussed in Note 8 “Debt”). Prepaid Expenses and Other Current Assets
| December 31,
(in thousands) | 2023 |  | 2022
Prepaid expenses | $ | 49,734 |  |  | $ | 26,142 |
Contract assets (see Note 2 “Revenue and Receivables”) | 15,365 |  |  | 32,495 |
Fair value of interest rate swaps (see Note 9 “Derivative Financial Instruments”) | 74,974 |  |  | 78,110 |
Other receivables(1) | 28,835 |  |  | 121,225 |
Other current assets | 85,257 |  |  | 48,631 |
Prepaid expenses and other current assets | $ | 254,165 |  |  | $ | 306,603 |
___________________ (1)As of December 31, 2023 and 2022, the Company recorded a liability of $15 million and $88 million, respectively, which is reflected in accrued expenses and other current liabilities and which relates to certain loans provided to customers within the Solar business that the Company may be required to repurchase from third party lenders. Included in other receivables is the amount that the Company expects to recover if permission to operate is achieved in the event the third party lenders do require the Company to repurchase such loans. Inventories, net Inventories are primarily comprised of components and parts for the Company’s security and solar systems. The Company records inventory at the lower of cost and net realizable value. Inventories are presented net of an obsolescence reserve. Work-in-Progress Work-in-progress is primarily comprised of certain costs incurred for installations of security system equipment sold outright to customers that have not been completed as of the balance sheet date. Property and Equipment, net Property and equipment, net, is recorded at historical cost less accumulated depreciation, which is calculated using the straight-line method over the estimated useful lives of the related assets. Depreciation expense is reflected in depreciation and intangible asset amortization. Repairs and maintenance expenditures are expensed when incurred. Useful Lives:
Buildings and related improvements | Up to 40 years
Leasehold improvements | Lesser of remaining term of the lease or economic useful life
Capitalized software | 3 to 10 years
Machinery, equipment, and other | Up to 10 years
Net Carrying Amount:
| December 31, |  |
(in thousands) | 2023 |  | 2022 |  |
Land | $ | 10,313 |  |  | $ | 12,272 |  |  |
Buildings and leasehold improvements | 95,652 |  |  | 94,899 |  |  |
Capitalized software | 524,088 |  |  | 504,241 |  |  |
Machinery, equipment, and other | 168,343 |  |  | 170,622 |  |  |
Construction in progress | 34,302 |  |  | 12,571 |  |  |
Finance leases | 142,441 |  |  | 127,226 |  |  |
Accumulated depreciation | (691,969) |  |  | (615,640) |  |  |
Property and equipment, net | $ | 283,170 |  |  | $ | 306,191 |  |  |
Depreciation Expense:
| Years Ended December 31,
(in thousands) | 2023 |  | 2022 |  | 2021
Depreciation expense | $ | 191,904 |  |  | $ | 173,013 |  |  | $ | 165,392 |
Subscriber System Assets, net and Deferred Subscriber Acquisition Costs, net Subscriber system assets represent capitalized equipment and installation costs incurred in connection with transactions in which the Company retains ownership of the security system and are reflected in the Consolidated Balance Sheets as follows:
| December 31,
(in thousands) | 2023 |  | 2022
Gross carrying amount | $ | 6,404,479 |  |  | $ | 5,981,008 |
Accumulated depreciation | (3,398,543) |  |  | (3,062,468) |
Subscriber system assets, net | $ | 3,005,936 |  |  | $ | 2,918,540 |
Deferred subscriber acquisition costs represent selling expenses (primarily commissions) that are incremental to acquiring customers. The Company records subscriber system assets and deferred subscriber acquisition costs in the Consolidated Balance Sheets as these assets represent probable future economic benefits for the Company through the generation of future monitoring and related services revenue. Upon customer termination, the Company may retrieve such assets. Subscriber system assets and any related deferred subscriber acquisition costs are accounted for on a pooled basis based on the month and year of customer acquisition and are depreciated and amortized using an accelerated method over the estimated life of the customer relationship, which is 15 years. In order to align the depreciation and amortization of these pooled costs to the pattern in which their economic benefits are consumed, the accelerated method utilizes an average declining balance rate of approximately 250% and converts to straight-line methodology when the resulting charge is greater than that from the accelerated method, resulting in an average charge of approximately 55% of the pool within the first five years, 25% within the second five years, and 20% within the final five years. Depreciation of subscriber system assets and amortization of deferred subscriber acquisition costs are reflected in depreciation and intangible asset amortization and selling, general, and administrative expenses, respectively, as follows:
| Years Ended December 31,
(in thousands) | 2023 |  | 2022 |  | 2021
Depreciation of subscriber system assets | $ | 545,041 |  |  | $ | 531,013 |  |  | $ | 488,557 |
Amortization of deferred subscriber acquisition costs | $ | 188,222 |  |  | $ | 154,186 |  |  | $ | 118,162 |
Long-Lived Assets (excluding Goodwill and Indefinite-Lived Intangible Assets) The Company reviews long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of an asset or asset group may not be fully recoverable. The Company groups assets at the lowest level for which cash flows are separately identifiable. Recoverability is measured by a comparison of the carrying amount of the asset group to its expected future undiscounted cash flows. If the expected future undiscounted cash flows of the asset group are less than its carrying amount, an impairment loss is recognized based on the amount by which the carrying amount exceeds the fair value less costs to sell. The calculation of the fair value less costs to sell of an asset group is based on assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates, reflecting varying degrees of perceived risk. There were no material long-lived asset impairments during the periods presented. Accrued Expenses and Other Current Liabilities
| December 31,
(in thousands) | 2023 |  | 2022
Accrued interest | $ | 111,204 |  |  | $ | 156,495 |
Payroll-related accruals | 118,495 |  |  | 139,709 |
Operating lease liabilities (see Note 15 “Leases”) | 15,979 |  |  | 20,741 |
Fair value of interest rate swaps (see Note 9 “Derivative Financial Instruments”) | 5,312 |  |  | — |
Opportunity Fund (see Note 11 “Equity”) | 93,950 |  |  | 100,802 |
Other accrued liabilities | 256,375 |  |  | 358,992 |
Accrued expenses and other current liabilities | $ | 601,315 |  |  | $ | 776,739 |
Advertising Costs Advertising costs are recognized in selling, general, and administrative expenses when incurred and were $165 million, $214 million, and $235 million during 2023, 2022, and 2021, respectively. Included in advertising costs during 2023 are certain joint marketing costs and reimbursements associated with the Google Success Funds as discussed in Note 14 “Commitments and Contingencies.” Radio Conversion Program During 2019, the Company commenced a program to replace the 3G and Code-Division Multiple Access (“CDMA”) cellular equipment used in many of its security systems prior to the cellular network providers retiring their 3G and CDMA networks during 2022. The program was completed in 2023, and the Company incurred a total of $276 million of net radio conversion costs since the inception of the program. Radio conversion costs and radio conversion revenue are reflected in selling, general, and administrative expenses and monitoring and related services revenue, respectively, as follows:
| Years Ended December 31,
(in thousands) | 2023 |  | 2022 |  | 2021
Radio conversion costs | $ | 1,968 |  |  | $ | 29,766 |  |  | $ | 240,902 |
Radio conversion revenue | $ | 6,664 |  |  | $ | 28,058 |  |  | $ | 39,100 |
Merger, Restructuring, Integration, and Other Merger, restructuring, integration, and other represents certain direct and incremental costs resulting from acquisitions made by the Company, integration and third-party costs as a result of those acquisitions, costs related to the Company’s restructuring efforts, as well as fair value remeasurements and impairment charges on certain strategic investments. Significant activity included in merger, restructuring, integration, and other during the periods presented includes: During 2023, primarily relates to integration and third-party costs related to the strategic optimization of the Solar business operations following the ADT Solar acquisition, as well as restructuring costs. During 2022, merger, restructuring, integration, and other was not material. During 2021, primarily relates to an impairment charge in CSB due to lower than expected benefits from a developed technology intangible asset. Concentration of Credit Risks The majority of the Company’s cash and cash equivalents and restricted cash and restricted cash equivalents are held at major financial institutions. There is a concentration of credit risk related to certain account balances in excess of the Federal Deposit Insurance Corporation insurance limit of $250,000 per account. The Company regularly monitors the financial stability of these financial institutions and believes there is no exposure to any significant credit risk for its cash and cash equivalents and restricted cash and restricted cash equivalents. Concentration of credit risk associated with the majority of the Company’s receivables from customers is limited due to the significant size of the customer base. Fair Value of Financial Instruments The Company’s financial instruments primarily consist of cash and cash equivalents, restricted cash and restricted cash equivalents, accounts receivable, retail installment contract receivables, accounts payable, debt, and derivative financial instruments. Due to their short-term and/or liquid nature, the fair values of cash, restricted cash, accounts receivable, and accounts payable approximate their respective carrying amounts. Cash Equivalents - Included in cash and cash equivalents and restricted cash and restricted cash equivalents, as applicable from time to time, are investments in money market mutual funds. These investments are generally classified as Level 1 fair value measurements, which represent unadjusted quoted prices in active markets for identical assets or liabilities. Investments in money market mutual funds were $55 million and $145 million as of December 31, 2023 and December 31, 2022, respectively. CSB Retail Installment Contract Receivables, net - The fair values of the Company’s retail installment contract receivables are determined using a discounted cash flow model and are classified as Level 3 fair value measurements.
| December 31,
| 2023 |  | 2022
(in thousands) | Carrying Amount |  | Fair Value |  | Carrying Amount |  | Fair Value
Retail installment contract receivables, net | $ | 673,635 |  |  | $ | 487,685 |  |  | $ | 531,516 |  |  | $ | 385,114 |
Long-Term Debt Instruments - The fair values of the Company’s debt instruments are determined using broker-quoted market prices, which represent quoted prices for similar assets or liabilities as well as other observable market data, and are classified as Level 2 fair value measurements. The carrying amounts of debt outstanding, if any, under the Company’s first lien revolving credit facility (the “First Lien Revolving Credit Facility”) and its uncommitted receivables securitization financing agreement (the “2020 Receivables Facility”) approximate their fair values, as interest rates on these borrowings approximate current market rates.
|  | December 31,
|  | 2023 |  | 2022
(in thousands) |  | Carrying Amount |  | Fair Value |  | Carrying Amount |  | Fair Value
Long-term debt instruments subject to fair value disclosures(1) |  | $ | 7,756,800 |  |  | $ | 7,732,159 |  |  | $ | 9,733,700 |  |  | $ | 9,312,932 |
________________ (1) Excludes finance leases. Derivative Financial Instruments - Derivative financial instruments are reported at fair value as either assets or liabilities. These fair values are primarily calculated using discounted cash flow models utilizing observable inputs, such as quoted forward interest rates, and incorporate credit risk adjustments to reflect the risk of default by the counterparty or the Company. The resulting fair values are classified as Level 2 fair value measurements. Refer to Note 9 “Derivative Financial Instruments” for the fair values of the Company’s derivative financial instruments.

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