ADT Inc. (NYSE: ADT), the most trusted brand in smart home and
small business security, today reported results for the first
quarter of 2022.
“The momentum we’ve built in our business is
producing results, illustrated by strong improvements to our
revenue and earnings, growth in subscribers, and record-high
customer retention,” said ADT President and CEO Jim DeVries. “At
our Investor Day earlier this year, we laid out a plan to
meaningfully grow our revenue, earnings, and cash flows through
2025. With several of our achievements this quarter – from
launching the Google Doorbell, to a strong start for ADT Solar, to
expansion of our customer-friendly virtual service options – we are
already showing progress against that plan as we lead the way in
delivering safe, smart, and sustainable solutions.”
BUSINESS HIGHLIGHTS
ADT continued to make progress on its
transformation into an innovative, technology-focused growth
company offering a complete suite of safe, smart, and sustainable
solutions.
Foundation for Growth
- Continued
growth of RMR – As of the end of the quarter, RMR totaled $365
million, representing a 5% increase over the prior year.
Approximately 80% of CSB and Commercial revenue was generated from
this durable recurring revenue.
- Record customer
retention – With strong customer satisfaction, trailing 12-month
gross customer revenue attrition was 12.9% at the end the first
quarter. This performance reflects a 20-basis-point improvement
both sequentially and year over year.
Innovative Offerings
- Google Nest
doorbell launch – As part of ADT’s partnership with Google, the
Company is now selling, installing, and servicing the Google
Doorbell as part of the ADT smart home offering. Since the launch
in January, the Company has sold over 60,000 Nest Doorbells with
key benefits including easy installation, intelligent alerts,
reliable video security with 24/7 live view, and 30-day event-based
recordings. Additionally, the Company has rolled out mesh Wi-Fi
subsequent to the quarter and is targeting to launch the Google
indoor and outdoor cameras by the end of the third quarter.
- Establishing
next-generation security for Commercial customers – ADT Commercial
showcased several innovations at the recent International Security
Conference, ISC West, including the use of humanoid robotics in
physical security applications and leveraging autonomous indoor
drone technology as an additional layer of surveillance.
- Ford and ADT
joint venture – During the first quarter, Ford and ADT announced a
new joint venture called Canopy that will combine ADT’s
professional security monitoring and Ford’s AI-driven video camera
technology to help customers strengthen security of new and
existing vehicles across automotive brands. The joint venture
closed in April 2022, and both parties have made their initial
funding payments.
Unrivaled Safety
- Continued
rollout of ADT’s SMART monitoring solutions – ADT’s patented SMART
(System Monitoring and Response Technology) monitoring helps
prioritize response events, enhance response policies, and develop
processes that allow ADT to send data to emergency response centers
directly – all critically important when every second matters. The
Company continues to partner with industry associations and various
first responder agencies and expects to have this technology
available in 1,000 locations by the end of the year.
- 3G replacement
– Since 2019, ADT has replaced approximately 2.8 million radio
systems to ensure continuity of service ahead of the 2022 network
sunset dates. As of today, less than 3% of the original customer
base is left to be converted and the Company expects the remaining
net radio conversion costs to be immaterial.
- SoSecure new
location-sharing features – ADT’s award-winning personal safety
app, SoSecure, announced new location sharing features in April
2022. The new feature keeps users in touch with loved ones from
virtually anywhere and provides users with discreet ways to call
for help, including an SOS slider button, SMS chat, video or
hands-free with a custom secret phrase, even from a locked
screen.
Premium Experience
- Virtual service
visits – Virtual service is transforming how our digital and
physical worlds meet, allowing customers to more quickly
troubleshoot system issues. Customer response continues to be
extremely positive – the program successfully executed over 200,000
virtual service visits in the quarter with approximately 80% truck
roll avoidance success rate, generating high customer satisfaction
scores at a lower cost to the Company.
- ADT Solar
rebranding – In mid-April, the Company officially rebranded its
solar segment as ADT Solar, bringing the ADT brand that consumers
know and trust to the residential solar market.
2022 FINANCIAL OUTLOOK
The Company is affirming its financial guidance
for 2022, with all metrics representing an improvement over 2021
performance.
(in millions) |
|
|
Total Revenue |
|
$6,200 - $6,400 |
Adjusted EBITDA |
|
$2,335 - $2,435 |
Adjusted Free Cash Flow |
|
$550 - $625 |
See Note 1 for an
explanation of why the Company is not providing a quantitative
reconciliation of its non-GAAP financial outlook to the
corresponding GAAP measures. |
TOTAL COMPANY RESULTS (2)
(in millions,
except revenue payback, attrition, and per share data) |
|
Three Months Ended March 31, |
|
2022 |
|
2021 |
|
GAAP |
Total revenue |
|
$ |
1,545 |
|
|
$ |
1,305 |
|
Net income (loss) |
|
|
52 |
|
|
|
(48 |
) |
Net cash provided by (used in)
operating activities |
|
|
308 |
|
|
|
359 |
|
Net cash provided by (used in)
investing activities |
|
|
(405 |
) |
|
|
(399 |
) |
Net cash provided by (used in)
financing activities |
|
|
92 |
|
|
|
(41 |
) |
Net income (loss) per share of
common stock - diluted |
|
$ |
0.06 |
|
|
$ |
(0.06 |
) |
Net income (loss) per share of
Class B common stock - diluted |
|
$ |
0.06 |
|
|
$ |
(0.06 |
) |
|
|
Other Measures |
Adjusted EBITDA |
|
$ |
601 |
|
|
$ |
542 |
|
Adjusted Free Cash Flow |
|
|
(42 |
) |
|
|
64 |
|
Trailing twelve-month revenue
payback |
|
2.3 years |
|
2.2 years |
Trailing twelve-month gross
customer revenue attrition (percentage) |
|
|
12.9 |
% |
|
|
13.1 |
% |
End of period RMR |
|
$ |
365 |
|
|
$ |
349 |
|
Adjusted Net Income
(Loss) |
|
$ |
(7 |
) |
|
$ |
(57 |
) |
Adjusted Diluted Net Income
(Loss) per share |
|
$ |
(0.01 |
) |
|
$ |
(0.07 |
) |
SEGMENT RESULTS
Consumer and Small Business
(CSB)
(in millions) |
|
Three Months Ended March 31, |
|
|
2022 |
|
|
|
2021 |
|
|
GAAP |
Monitoring and related services |
|
$ |
993 |
|
|
$ |
951 |
|
Installation, product, and other |
|
|
70 |
|
|
|
87 |
|
Total CSB revenue |
|
$ |
1,063 |
|
|
$ |
1,039 |
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
561 |
|
|
$ |
519 |
|
Adjusted EBITDA Margin (as a %
of Total CSB Revenue) |
|
|
53 |
% |
|
|
50 |
% |
Note: amounts may not sum due to rounding
Total CSB revenue for the first quarter was
$1,063 million. This performance was driven by a $42 million, or 4%
increase in monitoring and related services (M&S) revenue
resulting from the Company’s subscriber growth initiatives and
improved customer retention.
CSB Adjusted EBITDA increased 8% to $561 million
in the first quarter on both higher M&S revenue and improved
cost performance. The Company’s virtual service and other
initiatives allowed ADT to keep service costs flat year over year
on an increase in subscribers.
Commercial
(in millions) |
|
Three Months Ended March 31, |
|
|
2022 |
|
|
|
2021 |
|
|
GAAP |
Monitoring and related services |
|
$ |
128 |
|
|
$ |
112 |
|
Installation, product, and other |
|
|
162 |
|
|
|
155 |
|
Total Commercial revenue |
|
$ |
290 |
|
|
$ |
266 |
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
24 |
|
|
$ |
23 |
|
Adjusted EBITDA Margin (as a %
of Total Commercial Revenue) |
|
|
8 |
% |
|
|
9 |
% |
Note: amounts may not sum due to rounding
Total Commercial revenue for the first quarter
increased 9% year over year to $290 million. This performance was
driven by increases in both M&S revenue and installation
revenue, as the business continues to recover volumes lost due to
the impact of the COVID-19 pandemic.
Commercial Adjusted EBITDA was $24 million in
the first quarter. The year-over-year increase was driven by higher
revenue, which was partially offset by the impact of cost inflation
on parts, labor, and fuel.
Solar
(in millions) |
|
Three Months Ended March 31, |
|
|
2022 |
|
|
|
2021 |
|
|
GAAP |
Installation, product, and other |
|
$ |
192 |
|
|
$ |
— |
|
Total Solar revenue (3) |
|
$ |
192 |
|
|
$ |
— |
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
17 |
|
|
$ |
— |
|
Adjusted EBITDA Margin (as a %
of Total Solar Revenue) |
|
|
9 |
% |
|
|
— |
% |
Note: amounts may not sum due to rounding
Total Solar revenue for the first quarter was
$192 million and Solar Adjusted EBITDA was $17 million. First
quarter 2022 revenue includes approximately $30 million negative
impact from amortization of purchase accounting adjustments related
to the Sunpro acquisition. ADT Solar installed approximately 5,500
systems in the quarter, an increase of nearly 80% year over year
compared to legacy Sunpro.
BALANCE SHEET, CASH, AND
LIQUIDITY
At the end of the first quarter 2022, the
Company had total debt of $9.9 billion with a net loss to total
debt ratio of (40.9x) and net leverage ratio of 4.3x. During the
quarter, the Company had net borrowings from its revolving credit
facility of $145 million and ended the quarter at $170 million of
revolver borrowings.
Operating cash flow during the first quarter
2022 was $308 million with Adjusted Free Cash Flow of ($42
million). Operating cash flow and Adjusted Free Cash Flow were
impacted by timing of prior year incentive compensation payments
and working capital. The Company believes these impacts are
isolated to the first quarter and expects June quarter 2022
Adjusted Free Cash Flow to be $200 million higher than the March
2022 quarter, about half of which is due to lower interest
payments.
Dividend Declaration
Effective May 5, 2022, the Company’s board
of directors declared a cash dividend of $0.035 per share to
holders of the Company’s common stock and Class B common stock of
record as of June 16, 2022. This dividend will be paid on
July 5, 2022.
_____________________
(1) |
|
The Company is not providing a quantitative reconciliation of its
financial outlook for Adjusted EBITDA and Adjusted Free Cash Flow
to net income (loss) and net cash provided by operating activities,
which are their respective corresponding GAAP measures, because the
Company is unable to reliably predict or estimate these GAAP
measures without unreasonable effort due to their dependence on
future uncertainties, such as the adjustments or items discussed
below under the heading “Non-GAAP Measures.” Additionally,
information that is currently not available to the Company could
have a potentially unpredictable and potentially significant impact
on its future GAAP financial results. |
(2) |
|
All variances are year-over-year unless otherwise noted. Adjusted
EBITDA, Adjusted Free Cash Flow, Adjusted Net Income (Loss),
Adjusted Diluted Net Income (Loss) per share, 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 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. |
(3) |
|
M&S revenue is not applicable to the Solar segment. |
Conference Call
As previously announced, management will host a
conference call at 10:00 a.m. ET today to discuss the Company’s
first quarter of 2022 results and lead a question-and-answer
session.
Participants may listen to a live webcast
through the Investor Relations website at investor.adt.com. A
replay of the webcast will be available on the website within 24
hours of the live event.
Alternatively, participants may listen to the
live call by dialing 1-877-407-3982 (domestic) or 1-201-493-6780
(international) and requesting the ADT First Quarter 2022 Earnings
Conference Call. An audio replay will be available for two weeks
following the call and can be accessed by dialing 1-844-512-2921
(domestic) or 1-412-317-6671 (international) and providing the
passcode 13728785.
A slide presentation highlighting the Company’s
results will also be available on the Investor Relations section of
the Company’s website. From time to time, the Company may use its
website as a channel of distribution of material Company
information. Financial and other material information regarding the
Company is routinely posted on and accessible at
investor.adt.com.
About ADT Inc.
ADT provides safe, smart and sustainable
solutions for people, homes and businesses. Through innovative
offerings, unrivaled safety, and a premium customer experience, all
delivered by the largest network of smart home security and rooftop
solar professionals in the U.S., we empower people to protect and
connect to what matters most. For more information,
visit www.adt.com.
Investor Relations: |
Media Relations: |
investorrelations@adt.com Tel: 888-238-8525 |
media@adt.com |
FORWARD-LOOKING STATEMENTS
ADT has made statements in this press release
and other reports, filings, and other public written and verbal
announcements that are forward-looking and therefore subject to
risks and uncertainties. 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 are made in reliance
on the safe harbor protections provided thereunder. These
forward-looking statements relate to anticipated financial
performance; management’s plans and objectives for future
operations; our acquisition of Sunpro Solar, now ADT Solar, and its
anticipated impact on our business and financial condition; market
conditions; our 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 our innovative offerings; the
successful commercialization of our joint venture with Ford; the
successful conversion of customers who continue to utilize 3G
services; and other matters. Forward-looking statements can be
identified by various words such as “expects,” “intends,” “will,”
“anticipates,” “believes,” “confident,” “continue,” “propose,”
“seeks,” “could,” “may,” “should,” “estimates,” “forecasts,”
“might,” “goals,” “objectives,” “targets,” “planned,” “projects,”
and similar expressions. 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, risks and uncertainties
related to the Company’s ability to successfully integrate and
operate the ADT Solar business, the Company’s ability to
commercialize its joint venture with Ford, the Company’s ability to
successfully generate profitable revenue from new partnerships, the
Company’s ability to successfully convert all remaining customers
away from the use of a 3G platform, and risk factors that are
described in the Company’s Annual Report on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K, and other
filings with the Securities and Exchange Commission (“SEC”),
including the sections entitled “Risk Factors” and “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations” contained therein. Any forward-looking statement made
in this press release speaks only as of the date on which it is
made. ADT undertakes no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information,
future developments or otherwise.
ADT INC. AND
SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS(in millions, except per share
data)(Unaudited)
|
|
Three Months Ended March 31, |
|
|
|
2022 |
|
|
|
2021 |
|
Monitoring and related
services |
|
$ |
1,121 |
|
|
$ |
1,063 |
|
Installation, product, and
other |
|
|
423 |
|
|
|
242 |
|
Total revenue |
|
|
1,545 |
|
|
|
1,305 |
|
Cost of revenue (exclusive of
depreciation and amortization shown separately below) |
|
|
510 |
|
|
|
381 |
|
Selling, general, and
administrative expenses |
|
|
482 |
|
|
|
450 |
|
Depreciation and intangible
asset amortization |
|
|
476 |
|
|
|
470 |
|
Merger, restructuring,
integration, and other |
|
|
1 |
|
|
|
21 |
|
Operating income (loss) |
|
|
76 |
|
|
|
(16 |
) |
Interest expense, net |
|
|
(6 |
) |
|
|
(48 |
) |
Other income (expense) |
|
|
1 |
|
|
|
2 |
|
Income (loss) before income taxes |
|
|
71 |
|
|
|
(62 |
) |
Income tax benefit
(expense) |
|
|
(20 |
) |
|
|
15 |
|
Net income (loss) |
|
$ |
52 |
|
|
$ |
(48 |
) |
|
|
|
|
|
Net income (loss) per
share - basic: |
|
|
|
|
Common stock |
|
$ |
0.06 |
|
|
$ |
(0.06 |
) |
Class B common stock |
|
$ |
0.06 |
|
|
$ |
(0.06 |
) |
|
|
|
|
|
Weighted-average
shares outstanding - basic: |
|
|
|
|
Common stock |
|
|
844 |
|
|
|
763 |
|
Class B common stock |
|
|
55 |
|
|
|
55 |
|
|
|
|
|
|
Net income (loss) per
share - diluted: |
|
|
|
|
Common stock |
|
$ |
0.06 |
|
|
$ |
(0.06 |
) |
Class B common stock |
|
$ |
0.06 |
|
|
$ |
(0.06 |
) |
|
|
|
|
|
Weighted-average
shares outstanding - diluted: |
|
|
|
|
Common stock |
|
|
911 |
|
|
|
763 |
|
Class B common stock |
|
|
55 |
|
|
|
55 |
|
Note: amounts may not sum due to rounding
ADT INC. AND
SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE
SHEETS(in
millions)(Unaudited)
|
March 31, 2022 |
|
December 31, 2021 |
Assets |
|
|
|
Current assets: |
|
|
|
Cash and cash equivalents |
$ |
17 |
|
$ |
24 |
Accounts receivable, net |
|
454 |
|
|
442 |
Inventories, net |
|
305 |
|
|
277 |
Work-in-progress |
|
76 |
|
|
71 |
Prepaid expenses and other current assets |
|
215 |
|
|
178 |
Total current assets |
|
1,067 |
|
|
993 |
Property and equipment,
net |
|
362 |
|
|
364 |
Subscriber system assets,
net |
|
2,919 |
|
|
2,868 |
Intangible assets, net |
|
5,286 |
|
|
5,413 |
Goodwill |
|
5,941 |
|
|
5,943 |
Deferred subscriber
acquisition costs, net |
|
905 |
|
|
850 |
Other assets |
|
534 |
|
|
463 |
Total assets |
$ |
17,015 |
|
$ |
16,894 |
|
|
|
|
Liabilities and
stockholders' equity |
|
|
|
Current liabilities: |
|
|
|
Current maturities of long-term debt |
$ |
126 |
|
$ |
118 |
Accounts payable |
|
450 |
|
|
475 |
Deferred revenue |
|
374 |
|
|
374 |
Accrued expenses and other current liabilities |
|
629 |
|
|
737 |
Total current liabilities |
|
1,579 |
|
|
1,703 |
Long-term debt |
|
9,735 |
|
|
9,575 |
Deferred subscriber
acquisition revenue |
|
1,308 |
|
|
1,199 |
Deferred tax liabilities |
|
888 |
|
|
867 |
Other liabilities |
|
224 |
|
|
301 |
Total liabilities |
|
13,735 |
|
|
13,646 |
|
|
|
|
Total stockholders' equity |
|
3,280 |
|
|
3,249 |
Total liabilities and stockholders' equity |
$ |
17,015 |
|
$ |
16,894 |
Note: amounts may not sum due to rounding
ADT INC. AND
SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS(in
millions)(Unaudited)
|
Three Months Ended March 31, |
|
|
2022 |
|
|
|
2021 |
|
Cash flows from
operating activities: |
|
|
|
Net income (loss) |
$ |
52 |
|
|
$ |
(48 |
) |
Adjustments to reconcile net
income (loss) to net cash provided by (used in) operating
activities: |
|
|
|
Depreciation and intangible asset amortization |
|
476 |
|
|
|
470 |
|
Amortization of deferred subscriber acquisition costs |
|
37 |
|
|
|
29 |
|
Amortization of deferred subscriber acquisition revenue |
|
(53 |
) |
|
|
(37 |
) |
Share-based compensation expense |
|
16 |
|
|
|
16 |
|
Deferred income taxes |
|
16 |
|
|
|
(22 |
) |
Provision for losses on receivables and inventory |
|
19 |
|
|
|
14 |
|
Intangible asset impairments |
|
— |
|
|
|
18 |
|
Unrealized (gain) loss on interest rate swap contracts |
|
(145 |
) |
|
|
(107 |
) |
Other non-cash items, net |
|
65 |
|
|
|
39 |
|
Changes in operating assets
and liabilities, net of effects of acquisitions: |
|
|
|
Deferred subscriber acquisition costs |
|
(93 |
) |
|
|
(67 |
) |
Deferred subscriber acquisition revenue |
|
81 |
|
|
|
58 |
|
Other, net |
|
(163 |
) |
|
|
(4 |
) |
Net cash provided by (used in) operating activities |
|
308 |
|
|
|
359 |
|
Cash flows from
investing activities: |
|
|
|
Dealer generated customer
accounts and bulk account purchases |
|
(185 |
) |
|
|
(199 |
) |
Subscriber system asset
expenditures |
|
(182 |
) |
|
|
(144 |
) |
Purchases of property and
equipment |
|
(38 |
) |
|
|
(42 |
) |
Acquisition of businesses, net
of cash acquired |
|
— |
|
|
|
(16 |
) |
Other investing, net |
|
— |
|
|
|
1 |
|
Net cash provided by (used in) investing activities |
|
(405 |
) |
|
|
(399 |
) |
Cash flows from
financing activities: |
|
|
|
Proceeds from long-term
borrowings |
|
280 |
|
|
|
11 |
|
Proceeds from receivables
facility |
|
47 |
|
|
|
30 |
|
Repayment of long-term
borrowings, including call premiums |
|
(153 |
) |
|
|
(18 |
) |
Repayment of receivables
facility |
|
(21 |
) |
|
|
(7 |
) |
Dividends on common stock |
|
(32 |
) |
|
|
(29 |
) |
Other financing, net |
|
(29 |
) |
|
|
(27 |
) |
Net cash provided by (used in) financing activities |
|
92 |
|
|
|
(41 |
) |
|
|
|
|
Cash and cash
equivalents and restricted cash and restricted cash
equivalents: |
|
|
|
Net (decrease) increase during the period |
|
(5 |
) |
|
|
(80 |
) |
Beginning balance |
|
33 |
|
|
|
208 |
|
Ending balance |
$ |
28 |
|
|
$ |
127 |
|
Note: amounts may not sum due to rounding
ADT INC. AND
SUBSIDIARIESSEGMENT
INFORMATION(in
millions)(Unaudited)
Total Revenue by Segment
|
|
Three Months Ended March 31, |
(in millions) |
|
2022 |
|
2021 |
CSB: |
|
|
|
|
Monitoring and related services |
|
$ |
993 |
|
$ |
951 |
Installation, product, and other |
|
|
70 |
|
|
87 |
Total
CSB |
|
$ |
1,063 |
|
$ |
1,039 |
|
|
|
|
|
Commercial: |
|
|
|
|
Monitoring and related services |
|
$ |
128 |
|
$ |
112 |
Installation, product, and other |
|
|
162 |
|
|
155 |
Total
Commercial |
|
$ |
290 |
|
$ |
266 |
|
|
|
|
|
Solar: |
|
|
|
|
Installation and other |
|
$ |
192 |
|
$ |
— |
Total Solar
(1) |
|
$ |
192 |
|
$ |
— |
|
|
|
|
|
Total Revenue |
|
$ |
1,545 |
|
$ |
1,305 |
_______________________
(1) M&S revenue is not applicable to the
Solar segment.
Adjusted EBITDA by Segment
|
|
Three Months Ended March 31, |
(in millions) |
|
2022 |
|
2021 |
CSB |
|
$ |
561 |
|
$ |
519 |
Commercial |
|
|
24 |
|
|
23 |
Solar |
|
|
17 |
|
|
— |
Total |
|
$ |
601 |
|
$ |
542 |
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 condensed
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 we
believe these measures are useful, 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.
With regard to our financial guidance for 2022,
the Company is not providing a quantitative reconciliation for
forward-looking Adjusted EBITDA and Adjusted Free Cash Flow to net
income (loss) and net cash provided by operating activities, which
are the most directly comparable GAAP measures respectively. 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
reconciliations below. 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; and
(ix) other income/gain or expense/loss items such as impairment
charges, financing and consent fees, or acquisition-related
adjustments.
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 its margin measure, which is calculated as Adjusted
EBITDA as a percentage of total revenue.
|
Three Months Ended March 31, |
(in millions) |
2022 |
|
2021 |
Net income (loss) |
$ |
52 |
|
|
$ |
(48 |
) |
Interest expense, net |
|
6 |
|
|
|
48 |
|
Income tax expense
(benefit) |
|
20 |
|
|
|
(15 |
) |
Depreciation and intangible
asset amortization |
|
476 |
|
|
|
470 |
|
Amortization of deferred
subscriber acquisition costs |
|
37 |
|
|
|
29 |
|
Amortization of deferred
subscriber acquisition revenue |
|
(53 |
) |
|
|
(37 |
) |
Share-based compensation
expense |
|
16 |
|
|
|
16 |
|
Merger, restructuring,
integration and other |
|
1 |
|
|
|
21 |
|
Loss on extinguishment of
debt |
|
— |
|
|
|
— |
|
Radio conversion costs,
net(1) |
|
10 |
|
|
|
59 |
|
Acquisition related
adjustments(2) |
|
36 |
|
|
|
— |
|
Other, net |
|
1 |
|
|
|
— |
|
Adjusted EBITDA |
$ |
601 |
|
|
$ |
542 |
|
|
|
|
|
Net income (loss) to total
revenue ratio |
|
3.3 |
% |
|
(3.7 |
)% |
Adjusted EBITDA Margin
(as percentage of Total Revenue) |
|
38.9 |
% |
|
|
41.6 |
% |
Note: amounts may not sum due to
rounding_______________________(1) Represents net costs associated
with replacing cellular technology used in many of our security
systems pursuant to a replacement program.(2) Represents
amortization of purchase accounting adjustments related to the
Sunpro Solar Acquisition.
Free Cash Flow, Adjusted Free Cash Flow,
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.
We believe the presentation of Free Cash Flow
and Adjusted Free Cash Flow are appropriate to provide investors
with useful information about our ability to repay debt, make other
investments, and pay dividends. In addition, 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.
There are material limitations to using Free
Cash Flow and Adjusted Free Cash Flow. These metrics 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. Free Cash Flow and
Adjusted Free Cash Flow are not intended to represent residual cash
flow for discretionary expenditures since debt repayment
requirements and other non-discretionary expenditures are not
deducted.
|
Three Months Ended March 31, |
(in millions) |
|
2022 |
|
|
|
2021 |
|
Net cash provided by (used in)
operating activities |
$ |
308 |
|
|
$ |
359 |
|
Net cash provided by (used in)
investing activities |
$ |
(405 |
) |
|
$ |
(399 |
) |
Net cash provided by (used in)
financing activities |
$ |
92 |
|
|
$ |
(41 |
) |
|
|
|
|
Net cash provided by
(used in) operating activities |
$ |
308 |
|
|
$ |
359 |
|
Dealer generated customer
accounts and bulk account purchases |
|
(185 |
) |
|
|
(199 |
) |
Subscriber system asset
expenditures |
|
(182 |
) |
|
|
(144 |
) |
Purchases of property and
equipment |
|
(38 |
) |
|
|
(42 |
) |
Free Cash Flow |
|
(97 |
) |
|
|
(25 |
) |
Net proceeds from receivables
facility |
|
26 |
|
|
|
22 |
|
Financing and consent
fees |
|
— |
|
|
|
3 |
|
Restructuring and integration
payments |
|
3 |
|
|
|
1 |
|
Integration-related capital
expenditures |
|
1 |
|
|
|
5 |
|
Radio conversion costs,
net |
|
12 |
|
|
|
51 |
|
Other, net |
|
13 |
|
|
|
6 |
|
Adjusted Free Cash Flow |
$ |
(42 |
) |
|
$ |
64 |
|
Note: amounts may not sum due to rounding
Adjusted Net Income (Loss), Adjusted
Diluted Net Income (Loss) per share, 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 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 or loss and related per share
amounts (the most comparable GAAP measures).
During the third quarter of 2021, Net Income
(Loss) before special items was renamed Adjusted Net Income (Loss),
and Diluted Net Income (Loss) per share before special items was
renamed Adjusted Diluted Net Income (Loss) per share. There has
been no change to the calculation of these measures.
|
Three Months Ended March 31, |
(in millions, except per share data) |
|
2022 |
|
|
|
2021 |
|
Net income
(loss) |
$ |
52 |
|
|
$ |
(48 |
) |
Merger, restructuring,
integration, and other |
|
1 |
|
|
|
21 |
|
Financing and consent
fees |
|
— |
|
|
|
— |
|
Loss on extinguishment of
debt |
|
— |
|
|
|
— |
|
Radio conversion costs,
net |
|
10 |
|
|
|
59 |
|
Share-based compensation
expense |
|
16 |
|
|
|
16 |
|
Unrealized (gain) loss on
interest rate swaps(1) |
|
(145 |
) |
|
|
(107 |
) |
Acquisition related
adjustments |
|
36 |
|
|
|
— |
|
Other, net |
|
1 |
|
|
|
1 |
|
Tax adjustments(2) |
|
23 |
|
|
|
2 |
|
Adjusted Net Income (Loss) |
$ |
(7 |
) |
|
$ |
(57 |
) |
|
|
|
|
Weighted-average
shares outstanding -
diluted(3): |
|
|
|
Common stock |
|
911 |
|
|
|
763 |
|
Class B common stock |
|
55 |
|
|
|
55 |
|
|
|
|
|
Net loss per share -
diluted: |
|
|
|
Common stock |
$ |
0.06 |
|
|
$ |
(0.06 |
) |
Class B common stock |
$ |
0.06 |
|
|
$ |
(0.06 |
) |
|
|
|
|
Adjusted Diluted Net
Income (Loss) per
share(4) |
$ |
(0.01 |
) |
|
$ |
(0.07 |
) |
Note: amounts may not sum due to
rounding_______________________(1) Represents the change in the
fair value of interest rate swaps not designated as cash flow
hedges.(2) Represents tax impact on adjustments.(3) 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.(4) Calculated
as Adjusted Net Loss divided by diluted weighted-average shares
outstanding of Common Stock.
Debt to Net Income (Loss) Ratio and reconciliation to
Net 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)
Ratio:
(in millions) |
March 31, 2022 |
Total debt (book value) |
$ |
9,862 |
|
LTM net income (loss) |
$ |
(241 |
) |
Debt to net income (loss) ratio |
(40.9x) |
|
Net Leverage Ratio:
(in millions) |
March 31, 2022 |
Revolver |
$ |
170 |
|
First lien term loan |
|
2,751 |
|
First lien notes |
|
5,550 |
|
Receivables facility |
|
225 |
|
Finance leases |
|
90 |
|
Other |
|
4 |
|
Total first lien debt |
$ |
8,790 |
|
Second lien notes |
|
1,300 |
|
Total
debt(1) |
$ |
10,090 |
|
|
|
Less: |
|
Cash and cash equivalents |
|
(17 |
) |
Receivables Facility |
|
(225 |
) |
Net debt |
$ |
9,848 |
|
|
|
LTM Adjusted EBITDA |
$ |
2,271 |
|
Net leverage
ratio(2) |
4.3x |
|
Note: amounts may not sum due to
rounding_______________________(1) Debt instruments are stated at
face value.(2) During Q4 2021, we began presenting net leverage
ratio excluding Receivables Facility.
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