Goodwill and Other Intangible Assets

12 Months Ended

Dec. 31, 2023

Goodwill and Intangible Assets Disclosure [Abstract]

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

During the periods presented, changes in the carrying amount of goodwill by reportable segment were as follows:


(in thousands)	CSB		Solar		Total
Balance as of December 31, 2021	$	4,906,666	$	694,726	$	5,601,392
Acquisitions(1)	12,585		17,424		30,009
Impairment	—		(200,974)		(200,974)
Balance as of December 31, 2022	4,919,251		511,176		5,430,427
Acquisitions(1)	123		—		123
Impairment	—		(511,176)		(511,176)
Disposition	(15,475)		—		(15,475)
Balance as of December 31, 2023	$	4,903,899	$	—	$	4,903,899

________________

(1)Includes the impact of measurement period adjustments, which were not material during the periods presented.

As of December 31, 2023 and December 31, 2022, accumulated goodwill impairment losses totaled $712 million and $201 million, respectively. As of December 31, 2021, the Company had no accumulated goodwill impairment losses.

Other Intangible Assets


	December 31, 2023						December 31, 2022
(in thousands)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Definite-lived intangible assets:
Contracts and related customer relationships(1)	$	5,571,456	$	(2,937,245)	$	2,634,211	$	6,739,004	$	(4,143,469)	$	2,595,535
Dealer relationships(2)	1,518,020		(618,154)		899,866		1,518,020		(538,801)		979,219
Other(3)	209,773		(199,357)		10,416		212,773		(193,563)		19,210
Total definite-lived intangible assets	7,299,249		(3,754,756)		3,544,493		8,469,797		(4,875,833)		3,593,964

Indefinite-lived intangible assets:
Trade name(4)	1,333,000		—		1,333,000		1,333,000		—		1,333,000
Intangible assets	$	8,632,249	$	(3,754,756)	$	4,877,493	$	9,802,797	$	(4,875,833)	$	4,926,964

__________________

(1)During 2023, the Company retired $1.7 billion of certain customer relationship intangible assets acquired in the ADT Acquisition that became fully amortized.

(2)Originated from the Formation Transactions and the ADT Acquisition in 2015 and 2016, respectively. Amortized primarily over 19 years on a straight-line basis based on management estimates about attrition and the longevity of the underlying dealer network that existed at the time of acquisition.

(3)Primarily relates to trade names and other technology assets. Amortized over a period of up to 10 years on a straight-line basis.

(4)ADT trade name acquired as part of the ADT Acquisition.

Contracts and Related Customer Relationships

Contracts and related customer relationships comprise contracts with customers purchased under the ADT Authorized Dealer Program (as defined below) or from other third parties as well as customer relationships that originated from business acquisitions.

Additionally, the Company maintains a network of agreements with third-party independent alarm dealers who sell alarm equipment and ADT Authorized Dealer-branded monitoring and interactive services to residential end users (the “ADT Authorized Dealer Program”). The dealers in this program generate new end-user contracts with customers which the Company has the right, but not the obligation, to purchase from the dealer. Purchases of contracts with customers under the ADT

Authorized Dealer Program, or from other third parties, are considered asset acquisitions and are recognized based on the cost to acquire the assets, which may include cash consideration, non-cash consideration, contingent consideration, and directly-attributable transaction costs. The Company may charge back the purchase price of any end-user contract if the contract is canceled during the charge-back period, which is generally thirteen months from the date of purchase. The Company records the amount of the charge back as a reduction to the purchase price.

Purchases of contracts with customers under the ADT Authorized Dealer Program, or from other third parties, are accounted for on a pooled basis based on the month and year of acquisition. The Company amortizes its pooled contracts with customers using an accelerated method over the estimated life of the customer relationship, which is 15 years. The accelerated method for amortizing these contracts utilizes an average declining balance rate of approximately 300% and converts to straight-line methodology when the resulting amortization charge is greater than that from the accelerated method, resulting in an average amortization of approximately 65% of the pool within the first five years, 25% within the second five years, and 10% within the final five years.

Customer relationships acquired as part of business acquisitions, which primarily originated from the Formation Transactions and the ADT Acquisition, are amortized over a period of up to 15 years based on management estimates about the amounts and timing of estimated future revenue from customer accounts and average customer account life that existed at the time of the related business acquisition.

The change in the net carrying amount of contracts and related customer relationships was as follows:


	Years Ended December 31,
(in thousands)	2023		2022
Beginning balance	$	2,595,535	$	2,778,922

Customer contract additions, net of dealer charge-backs	564,652		633,431
Amortization	(525,676)		(819,677)
Other	(300)		2,859
Ending balance	$	2,634,211	$	2,595,535

During 2023 and 2022, the weighted-average amortization period for customer contract additions under the ADT Authorized Dealer Program and from other third parties was 15 years and 14 years, respectively.

Payments for customer contracts under the ADT Authorized Dealer Program and from other third parties are reflected as dealer generated customer accounts and bulk account purchases on the Consolidated Statements of Cash Flows.

During 2023 and 2022, the Company purchased customer accounts from certain other third parties for an aggregate contractual purchase price of $109 million and $111 million, respectively, subject to reduction based on customer retention. The Company paid initial cash at the closings in the aggregate amounts of $89 million and $82 million, respectively, which is included in the payments for dealer generated customer accounts and bulk account purchases.

Definite-Lived Intangible Asset Amortization Expense


	Years Ended December 31,
(in thousands)	2023		2022		2021
Definite-lived intangible asset amortization expense	$	613,679	$	911,405	$	1,185,249

As of December 31, 2023, the estimated aggregate amortization expense on our existing intangible assets is expected to be as follows (in thousands):


2024		2025		2026		2027		2028		Thereafter
$	550,057	$	472,569	$	416,533	$	367,642	$	363,549	$	1,374,143

Goodwill and Indefinite-Lived Intangible Assets Impairment

Goodwill and indefinite-lived intangible assets are not amortized and are tested for impairment at least annually as of the first day of the fourth quarter of each year and more often if an event occurs or circumstances change which indicate it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount. The Company may perform its impairment test for any reporting unit or indefinite-lived intangible asset through a qualitative assessment or elect to proceed directly to a quantitative impairment test, however, the Company may resume a qualitative assessment in any subsequent period if facts and circumstances permit.

Goodwill

Under a qualitative approach, the Company assesses whether it is more-likely-than-not that a reporting unit’s fair value is less than its carrying amount. If the Company elects to bypass the qualitative assessment for any reporting unit, or if a qualitative assessment indicates it is more-likely-than-not that the estimated fair value of a reporting unit is less than its carrying amount, the Company proceeds to a quantitative approach.

Under a quantitative approach, the Company estimates the fair value of a reporting unit and compares it to its carrying amount. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. The Company estimates the fair values of its reporting units using the income approach, which discounts projected cash flows using market participant assumptions. The income approach includes significant assumptions including, but not limited to, forecasted revenue, operating profit margins, Adjusted EBITDA margins, operating expenses, cash flows, perpetual growth rates, and discount rates. The estimated fair value of a reporting unit calculated using the income approach is sensitive to changes in the underlying assumptions. In developing these assumptions, the Company relies on various factors including operating results, business plans, economic projections, anticipated future cash flows, and other market data. Examples of events or circumstances that could reasonably be expected to negatively affect the underlying judgments and factors and ultimately impact the estimated fair value determinations may include such items as a prolonged downturn in the business environment, changes in economic conditions that significantly differ from the Company’s assumptions in timing or degree, volatility in equity and debt markets resulting in higher discount rates, and unexpected regulatory changes. As a result, there are inherent uncertainties related to these judgments and factors that may ultimately impact the estimated fair value determinations.

Except as discussed below within the Solar reporting unit, the Company did not record any goodwill impairment losses during the periods presented.

CSB - Based on the results of a quantitative goodwill impairment test as of October 1, 2023, the Company concluded the fair value of the CSB reporting unit substantially exceeded its carrying value.

Commercial - As a result of the purchase price of the Commercial Divestiture being substantially in excess of the carrying value of the net assets divested, the Company concluded it is more likely than not that the fair value of the Commercial reporting unit exceeded its carrying value as of October 1, 2023, and the Commercial Divestiture closed on October 2, 2023.

Solar Goodwill Impairment

During the first, second, and third quarters of 2023, the Company performed interim impairment quantitative assessments on the Solar reporting unit as a result of triggering events as of March 31, 2023, June 30, 2023, and September 30, 2023, and recorded goodwill impairment charges of $242 million, $181 million, and $88 million during the first, second, and third quarters of 2023, respectively. Following the impairments during 2023, the balance of goodwill in the Solar reporting unit was zero. The Company also assessed the recoverability of other long-lived assets related to its Solar business, and impairment charges were not material.

In addition, the Company recognized $201 million of goodwill impairment charges during the third quarter of 2022.

These goodwill impairments were a result of continued deterioration of industry conditions and macroeconomic decline as well as ADT Solar’s underperformance of operating results in successive quarters relative to expectations, and for the third quarter of 2023, as a result of the Company’s then recent plan to close a significant number of branches that operated the Solar business along with the associated headcount reductions.

Indefinite-Lived Intangible Assets

Under a qualitative approach, the impairment test for an indefinite-lived intangible asset consists of an assessment of whether it is more-likely-than-not that an asset’s fair value is less than its carrying amount. If the Company elects to bypass the qualitative assessment for any indefinite-lived intangible asset, or if a qualitative assessment indicates it is more-likely-than-not that the estimated carrying amount of such asset exceeds its fair value, the Company proceeds to a quantitative approach.

Under a quantitative approach, the Company estimates the fair value of an asset and compares it to its carrying amount. If the carrying amount exceeds fair value, an impairment loss is recognized in an amount equal to that excess. The fair value of an indefinite-lived intangible asset is determined based on the nature of the underlying asset.

The Company’s only indefinite-lived intangible asset is the ADT trade name. The fair value of the ADT trade name is determined under a relief from royalty method, which is an income approach that estimates the cost savings that accrue to the Company that it would otherwise have to pay in the form of royalties or license fees on revenue earned through the use of the asset. The utilization of the relief from royalty method requires the Company to make significant assumptions including revenue growth rates, the implied royalty rate, and the discount rate.

As of October 1, 2023, the Company quantitatively tested the ADT trade name for impairment. Based on the results of the October 1, 2023 test, the Company did not record any impairment losses associated with the ADT trade name, and the estimated fair value of the trade name substantially exceeded its carrying amount.

During 2022 and 2021, the Company did not record any impairment losses on its indefinite lived intangible assets.

Definite-Lived Intangible Asset Impairment

Definite-lived intangible asset impairments were not material during 2023 and 2022.

During the first quarter of 2021, the Company recognized $18 million in impairment losses on its other definite-lived intangible assets primarily due to lower than expected benefits from the Cell Bounce developed technology intangible asset, which is included in the CSB segment, as a result of the worldwide shortages for certain electronic components at that time. The fair value was determined using an income-based approach, and the loss is reflected in merger, restructuring, integration, and other.