ADT Inc.

11/03/2026 | Press release | Distributed by Public on 11/03/2026 14:45

Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Table of Contents
•Introduction
•Business and Basis of Presentation
•Key Performance Indicators
•Trends, Uncertainties, and Factors Affecting Operating Results
•Results of Operations
•Non-GAAP Measures
•Liquidity and Capital Resources
•Critical Accounting Estimates
•Cautionary Statements Regarding Forward-Looking Statements
INTRODUCTION
The following section contains forward-looking statements about our business, operations, and financial performance based on current plans and estimates that involve risks, uncertainties, and assumptions, which could differ materially from actual results. Factors that could cause such differences are discussed in the sections of this Quarterly Report on Form 10-Q titled "Cautionary Statements Regarding Forward-Looking Statements" and Item 1A "Risk Factors."
The discussion and analysis below focuses on significant or material items to the Company. To obtain a more comprehensive understanding of our financial condition, changes in financial condition, and results of operations, the following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements and the related notes included in our 2025 Annual Report.
Unless otherwise defined herein, capitalized terms related to the Merger used in this Management's Discussion and Analysis of Financial Condition and Results of Operations have the meanings ascribed to them in Note 15 "Subsequent Event" to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
BUSINESS AND BASIS OF PRESENTATION
Our Business
ADT (or "we," "our," and "us"), provides security, interactive, and smart home solutions to consumer and small business customers in the U.S.
Our mission is to empower people to protect and connect what matters most with safe, smart, and sustainable solutions, delivered through innovative offerings, unrivaled safety, and a premium experience because we believe that everyone deserves to feel safe.
Merger Agreement
On October 29, 2026, we entered into the Merger Agreement with Parent, pursuant to which, subject to certain terms and conditions therein, Parent will acquire ADT for $10.00 per share in cash, representing a premium of 45.6% to ADT's unaffected closing share price on October 27, 2026, and 52.1% to ADT's 30-day volume-weighted average share price ending on October 27, 2026. The Merger is expected to close in the first quarter of 2027 and is conditioned on the approval by our stockholders of a proposal to adopt the Merger Agreement, as well as the satisfaction or waiver of other customary closing conditions, including the expiration or early termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. If the Merger is consummated, we will become a privately held company, and our Common Stock will be delisted from the New York Stock Exchange. See additional information in Note 15 "Subsequent Event" to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Basis of Presentation
We report our results as a single operating and reportable segment. All financial information presented in this section has been prepared in U.S. dollars in accordance with GAAP, excluding any non-GAAP measures, and includes the accounts of ADT Inc. and its wholly-owned subsidiaries. All intercompany transactions have been eliminated.
Results of our former Solar and Commercial businesses are presented within discontinued operations for current and historical periods, as applicable.
KEY PERFORMANCE INDICATORS
We evaluate our results using certain key performance indicators, including operating metrics such as recurring monthly revenue and gross customer revenue attrition, as well as GAAP total revenue and the non-GAAP measures Adjusted Earnings per Share ("Adjusted EPS") and Adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization ("Adjusted EBITDA"), both from continuing operations.
Computations of our key performance indicators may not be comparable to other similarly titled measures reported by other companies.
Certain operating metrics are approximated, as there may be variations to reported results due to certain adjustments we might make in connection with the integration over several periods of acquired companies that calculated these metrics differently or periodic reassessments and refinements in the ordinary course of business, including changes due to system conversions or historical methodology differences in legacy systems.
End-of-Period Recurring Monthly Revenue ("RMR")
RMR is generated by contractual recurring fees for monitoring and other recurring services provided to our customers, including contracts monitored but not owned.
We use RMR to evaluate our overall sales, installation, and retention performance. Additionally, we believe the presentation of RMR is useful to investors because it measures the volume of revenue under contract at a given point in time, which is useful for forecasting future revenue performance as the majority of our revenue comes from recurring sources.
Gross Customer Revenue Attrition
Gross customer revenue attrition is defined as RMR lost as a result of customer attrition, net of dealer charge-backs and reinstated customers, excluding contracts monitored but not owned and self set-up/do-it-yourself ("DIY") customers. Customer sites are considered canceled when all services are terminated. Dealer charge-backs represent customer cancellations charged back to the dealers because the customer canceled service during the charge-back period, which is generally thirteen months.
Gross customer revenue attrition is calculated on a trailing twelve-month basis, the numerator of which is the RMR lost during the period due to attrition, net of dealer charge-backs and reinstated customers, and the denominator of which is total annualized RMR based on an average of RMR under contract at the beginning of each month during the period, in each case, excluding contracts monitored but not owned and self set-up/DIY customers.
We use gross customer revenue attrition to evaluate our retention and customer satisfaction performance, as well as evaluate subscriber trends by vintage year. Additionally, we believe the presentation of gross customer revenue attrition is useful to investors as it provides a means to evaluate drivers of customer attrition and the impact of retention initiatives.
Total Revenue
Management and the Board of Directors use total revenue, which is calculated in accordance with GAAP, to evaluate the performance of employees (including members of management) and the Company as a whole, as well as to allocate resources. Refer to the section titled "Results of Operations-Revenue" for additional information.
Adjusted EPS
Adjusted EPS (from continuing operations) is a non-GAAP measure. Our definition of Adjusted EPS, a reconciliation of Adjusted EPS to diluted income (loss) from continuing operations per share (the most directly comparable GAAP measure), and additional information, including a description of the limitations relating to the use of Adjusted EPS, are provided under "Results of Operations-Non-GAAP Measures."
Adjusted EBITDA
Adjusted EBITDA (from continuing operations) is a non-GAAP measure. Our definition of Adjusted EBITDA, a reconciliation of Adjusted EBITDA to income (loss) from continuing operations (the most directly comparable GAAP measure), and additional information, including a description of the limitations relating to the use of Adjusted EBITDA, are provided under "Results of Operations-Non-GAAP Measures."
TRENDS, UNCERTAINTIES, AND FACTORS AFFECTING OPERATING RESULTS
The information described herein could have a material effect on our business, financial condition, results of operations, cash flows, and key performance indicators.
Subscribers
As of September 30, 2026, we served approximately 6.0 million security monitoring service subscribers. Generally, a significant upfront investment is required to acquire new subscribers that in turn provide ongoing and predictable recurring revenue (RMR) generated from our monitoring services and other subscriber-based offerings. Although the economics of each installation may vary depending on the customer type, acquisition channel, and product and service offerings, we generally achieve revenue break-even in approximately two years.
New subscriber additions and customer attrition have a direct impact on our financial results, including revenue, operating income, and cash flows. A portion of our recurring subscriber base can be expected to cancel its service each year for a variety of reasons, including relocation, cost, loss to competition, or service issues, or we may disconnect service due to non-payment. A 100 basis point change in customer attrition typically has approximately a $40 million impact on recurring revenue on an annualized basis.
As of September 30, 2026, gross customer revenue attrition was 13.1%, as compared to 13.0% in the prior year, driven by higher non-payment disconnects slightly offset by fewer voluntary disconnects.
Relocations are sensitive to changes in the residential housing market, and fewer relocations generally lead to improvements in customer attrition, but fewer subscriber additions. Additionally, non-payment disconnects generally increase in a weaker macroeconomic environment. We may experience fluctuations in these or other trends in the future as changes in the general macroeconomic environment or housing market develop.
Revenue and Offerings
Our results are impacted by the mix, price, offerings, sales and distribution channel, and equipment ownership of our transactions.
For example, the mix of transactions accounted for under a Company-owned equipment model versus a customer-owned equipment model (referred to as outright sales) impacts the timing of when revenue and costs are reflected in earnings, as there are different accounting treatments applicable to each model, as discussed in Note 2 "Revenue and Receivables."
Historically, the majority of professional installation transactions occurred under a Company-owned model. However, since the second quarter of 2024, a growing percentage of our direct channel new subscriber adds are outright sales in connection with the national launch of our ADT+ platform. As a result, we have continued to experience an increase in both security installation, product, and other revenue and related costs due to the transition to our ADT+ platform, in which the equipment is sold outright to the customer. Currently, approximately 40% of new subscribers are outright sales.
In early 2026, the Company refined its go-to-market approach for certain non-ADT+ residential transactions and transitioned such transactions to an outright sales model where equipment will be customer owned, which aligns with the equipment ownership model for ADT+ transactions. Accordingly, we expect this to continue to result in an increase in security installation, product, and other revenue and cost of revenue recognized in the statements of operations in subsequent periods.
As we refine our go-to-market approach and explore additional sales channels, including the launch of ADT Blu on Amazon.com and Walmart.com during the second and third quarters of 2026, respectively, we may experience an increase in the proportion of ADT self set-up, or DIY, customers, which are also considered outright sales. The mix of professional installation solutions versus self set-up solutions may impact our results in future periods as a result of differences in pricing, offer tactics, and level of products and services. Although the DIY market typically has lower monthly recurring fees than our professional installations, we believe this approach will allow us to grow our subscriber base.
Changes in our recurring revenue base, including those resulting from changes in subscriber count, prices, and the mix of offerings, can also affect our results.
As of September 30, 2026, RMR was $360 million, as compared to $362 million in the prior year period, primarily reflecting lower recurring monthly revenue due to the sale of our multifamily business in October 2025 (the "Multifamily Divestiture"), partially offset by an increase in average prices.
Macroeconomic and Other Trends and Uncertainties
We may also experience an increase in other costs associated with factors such as (i) offering a wider variety of products and services; (ii) providing a greater mix of interactive and smart home solutions; (iii) replacing or upgrading certain system components due to technological advancements, cybersecurity upgrades, software or hardware end-of-life or otherwise; (iv) supply chain disruptions or other impacts such as tariffs or trade restrictions; (v) inflationary pressures on costs such as materials, labor, and fuel including those related to the ongoing conflict in the Middle East; and (vi) other changes in prices, interest rates, or terms from our suppliers, vendors, or third-party lenders.
We are currently monitoring, and will continue to monitor, macroeconomic trends and uncertainties such as the ongoing global memory chip shortage, potential supply chain disruptions and fuel shortages stemming from the ongoing conflict in the Middle East, key components of inflation, the status and effects of recently implemented or threatened tariffs and other trade restrictions, as well as potential changes to these tariffs or the imposition of reciprocal or other tariffs or trade restrictions by other countries. In February 2026, the U.S. Supreme Court ruled that certain tariffs imposed under the International Emergency Economic Powers Act ("IEEPA") were unauthorized. We have not recorded a material receivable for any refund of IEEPA tariffs, and the amount of IEEPA tariff refunds that we ultimately recover may differ from the full amount we previously paid. In addition, subsequent actions by the U.S. government to impose tariffs under alternative authorities, along with the possibility of further changes in trade policy, continue to create uncertainty in the global trade environment.
Any of these developments or future changes in trade policy may have negative consequences for our supply chain due to price increases from our vendors or suppliers or supply chain delays. At this time, we do not anticipate material negative impacts that cannot be mitigated through arrangements with our vendors and suppliers, price increases to our customers, or other actions but there is no guarantee that we will be able to successfully mitigate the negative effects of any such macroeconomic trends and uncertainties. We are also unable at this time to determine any future negative impacts from reduced consumer spending as a result of inflationary or other pressures or uncertainty that may result from the imposition of current or future tariffs or other trade restrictions.
As part of our response to changes or pressures in the current macroeconomic environment, we have been evaluating, and continue to evaluate, cost-saving opportunities such as leveraging technology, reducing headcount or our physical facilities footprint when appropriate, and reducing non-essential spend. While we have experienced some increase in costs as a result of inflation, we have, for the most part, been able to offset the rising costs through cost-saving opportunities, as well as price increases to our customers.
Origin AI Acquisition
In February 2026, we acquired Origin AI, a provider of patented AI-enabled presence detection and ambient sensing technology. Origin AI's technology uses artificial intelligence and proprietary algorithms to analyze ubiquitous radio frequency signals to detect and classify human presence and activity within the home or other premises without the use of cameras, audio, or wearable devices. This technology is expected to enhance our ability to improve alarm verification, reduce false alarms, and support new intelligent security and smart home use cases over time.
Total consideration transferred in connection with the Origin AI Acquisition was $164 million, of which we recognized $106 million of goodwill.
The Company does not expect a material impact to revenue or cost of revenue from the Origin AI Acquisition during 2026.
RESULTS OF OPERATIONS
Three Months Ended September 30, Nine Months Ended September 30,
(in thousands, except per share data or as otherwise indicated)
2026 2025 $ Change 2026 2025 $ Change
Revenue:
Monitoring and related services $ 1,083,797 $ 1,097,561 $ (13,764) $ 3,246,384 $ 3,270,906 $ (24,522)
Security installation, product, and other 265,182 200,393 64,789 693,409 581,574 111,835
Total revenue 1,348,979 1,297,954 51,025 3,939,793 3,852,480 87,313
Cost of revenue (exclusive of depreciation and amortization shown separately below):
Monitoring and related services 159,574 161,788 (2,214) 471,735 481,566 (9,831)
Security installation, product, and other 133,142 88,922 44,220 327,385 259,452 67,933
Total cost of revenue 292,716 250,710 42,006 799,120 741,018 58,102
Selling, general, and administrative expenses 400,417 384,353 16,064 1,151,093 1,109,091 42,002
Depreciation and intangible asset amortization 345,315 347,818 (2,503) 1,037,739 1,026,069 11,670
Operating income (loss) 310,531 315,073 (4,542) 951,841 976,302 (24,461)
Interest expense, net
(101,615) (112,617) 11,002 (302,262) (349,294) 47,032
Other income (expense) 446 (3,835) 4,281 3,131 (7,896) 11,027
Income (loss) from continuing operations before income taxes 209,362 198,621 10,741 652,710 619,112 33,598
Income tax benefit (expense) (56,508) (55,109) (1,399) (175,438) (164,890) (10,548)
Income (loss) from continuing operations 152,854 143,512 9,342 477,272 454,222 23,050
Income (loss) from discontinued operations, net of tax
(2,277) 1,620 (3,897) (4,471) (3,665) (806)
Net income (loss) $ 150,577 $ 145,132 $ 5,445 $ 472,801 $ 450,557 $ 22,244
Diluted income (loss) from continuing operations per share of Common Stock $ 0.20 $ 0.17 $ 0.03 $ 0.59 $ 0.51 $ 0.08
Diluted weighted-average shares outstanding of Common Stock 736,762 828,448 (91,686) 774,333 846,495 (72,162)
Key Performance Indicators: (1)
RMR (2)
$ 359,791 $ 362,434 $ (2,643) $ 359,791 $ 362,434 $ (2,643)
Gross customer revenue attrition (percent) (2)
13.1% 13.0% N/A* 13.1% 13.0% N/A*
Adjusted EPS (3)
$ 0.24 $ 0.23 $ 0.01 $ 0.71 $ 0.67 $ 0.04
Adjusted EBITDA (3)
$ 664,965 $ 675,646 $ (10,681) $ 2,009,232 $ 2,010,071 $ (839)
_______________________
(1)Refer to the "-Key Performance Indicators" section for the definitions of these key performance indicators.
(2)Refer to the "-Trends, Uncertainties, and Factors Affecting Operating Results" section for additional details and comparison of current to prior period results.
(3)Refer to the "-Non-GAAP Measures" section for the definitions of these non-GAAP measures and reconciliations to the most comparable GAAP measures.
* Not applicable.
Period-over-period changes in income (loss) from continuing operations, including on a per share basis, are discussed through the analysis of the underlying GAAP components below:
Revenue
The three and nine months ended September 30, 2026, as compared to the prior year periods, primarily reflects:
•Monitoring and related services revenue ("M&S Revenue"): (i) lower recurring revenue of $16 million and $35 million, respectively, primarily driven by a decrease in volume and other items, including the Multifamily Divestiture, of $37 million and $93 million, respectively, partially offset by an increase in price of $21 million and $58 million, respectively, and (ii) higher revenue of $3 million and $10 million, respectively, primarily attributable to an increase in time and materials billings.
•Security installation, product, and other revenue: higher installation revenue of $65 million and $109 million, respectively, primarily driven by a higher mix of professionally installed systems under the outright sales model in connection with our refined equipment ownership go-to-market approach.
Cost of Revenue
The three and nine months ended September 30, 2026, as compared to the prior year periods, primarily reflects:
•Monitoring and related services costs ("M&S Costs"): lower customer service and maintenance costs of $3 million and $14 million, respectively, partially offset by higher interactive fees of $1 million and $4 million, respectively.
•Security installation, product, and other costs: an increase in installation and product costs of $39 million and $63 million, respectively, primarily due to a higher mix of professionally installed systems under the outright sales model discussed above.
Selling, General, and Administrative Expenses
The three months ended September 30, 2026, as compared to the prior year period, primarily reflects:
•an increase in general and administrative expenses of $13 million primarily due to certain settlement-related matters, as well as higher labor costs including those related to Origin AI,
•an increase in selling costs of $10 million primarily due to the amortization of deferred subscriber acquisition costs, and
•an increase in share-based compensation of $8 million primarily due to the Origin AI Retention Awards, partially offset by
•goodwill impairment of $12 million recognized in the prior year associated with the Multifamily Divestiture.
The nine months ended September 30, 2026, as compared to the prior year period, primarily reflects:
•an increase in the allowance for credit losses of $25 million,
•an increase in selling costs of $25 million primarily due to the amortization of deferred subscriber acquisition costs, and
•an increase in share-based compensation of $8 million primarily due to the Origin AI Retention Awards partially offset by the modification of certain share-based compensation awards in the first quarter of 2025, partially offset by
•goodwill impairment of $12 million recognized in the prior year associated with the Multifamily Divestiture, and
•a decrease in general and administrative expenses of $11 million primarily as a result of a loss recovery from a legal settlement during the first quarter of 2026, partially offset by higher labor costs including those related to Origin AI.
Depreciation and Intangible Asset Amortization
The three months ended September 30, 2026, as compared to the prior year period, primarily reflects:
•a decrease in depreciation of subscriber system assets of $9 million due to the shift to an outright sales model, partially offset by
•an increase in the depreciation of property and equipment of $6 million.
The nine months ended September 30, 2026, as compared to the prior year period, primarily reflects:
•an increase in the depreciation of property and equipment of $20 million, and
•an increase in the amortization of customer contracts acquired under our authorized dealer program and from other third parties of $8 million, partially offset by
•a decrease in depreciation of subscriber system assets of $20 million due to the shift to an outright sales model.
Interest Expense, Net
The three and nine months ended September 30, 2026, as compared to the prior year periods, primarily reflects a decrease in unrealized losses on interest rate swaps of $7 million and $32 million, respectively, with the remaining change due to lower interest rates on our long-term debt.
Other Income (Expense)
The three and nine months ended September 30, 2026, as compared to the prior year period, primarily reflects a loss on extinguishment of debt of $5 million and $11 million, respectively, recorded in the prior year periods.
Income Tax Benefit (Expense)
The Company's income tax expense for the three months ended September 30, 2026 was $57 million, resulting in an effective tax rate for the period of 27.0%. The effective tax rate primarily represents the federal statutory tax rate of 21.0% and a state tax rate, net of federal benefits, of 5.1%.
The Company's income tax expense for the three months ended September 30, 2025 was $55 million, resulting in an effective tax rate for the period of 27.7%. The effective tax rate primarily represents the federal statutory tax rate of 21.0%, a state tax rate, net of federal benefits, of 5.2%, and an unfavorable impact from a non-deductible goodwill impairment charge of 1.5%.
The Company's income tax expense for the nine months ended September 30, 2026 was $175 million, resulting in an effective tax rate for the period of 26.9%. The effective tax rate primarily represents the federal statutory tax rate of 21.0% and a state tax rate, net of federal benefits, of 5.0%.
The Company's income tax expense for the nine months ended September 30, 2025 was $165 million, resulting in an effective tax rate for the period of 26.6%. The effective tax rate primarily represents the federal statutory tax rate of 21.0% and a state tax rate, net of federal benefits, of 5.2%.
NON-GAAP MEASURES
To provide investors with additional information in connection with our results as determined in accordance with GAAP, we disclose the following non-GAAP measures. These measures are not financial measures calculated in accordance with GAAP, and should not be considered as a substitute for net income, income (loss) from continuing operations, operating income, or their respective per share amounts as applicable, or any other measure calculated in accordance with GAAP, and may not be comparable to similarly titled measures reported by other companies.
Adjusted EPS
We define Adjusted EPS as diluted income (loss) from continuing operations per share adjusted for the per share amounts related to (i) share-based compensation expense; (ii) merger, restructuring, integration, and other items; (iii) impairment charges; (iv) unrealized (gains) or losses on interest rate swaps; (v) other non-cash or non-routine adjustments not necessary to operate our business; and (vi) the impact these items have on taxes.
The diluted weighted average shares outstanding used in Adjusted EPS is equal to diluted weighted average shares outstanding of Common Stock calculated in accordance with GAAP.
We believe Adjusted EPS is a benchmark used by analysts and investors in our industry to compare our performance against the performance of other companies, although this measure may not be directly comparable to similar measures reported by other companies. We believe the presentation of Adjusted EPS is useful to investors as it provides additional information about how our management evaluates the business, including the performance of employees (including members of management).
There are material limitations to using Adjusted EPS as it does not include certain significant items, including the adjustments discussed above, which directly affect our diluted income (loss) from continuing operations per share (the most comparable GAAP measure). These limitations are best addressed by considering the economic effects of the excluded items independently and by considering Adjusted EPS in conjunction with diluted income (loss) from continuing operations per share as calculated in accordance with GAAP.
The table below reconciles Adjusted EPS to diluted income (loss) from continuing operations per share of Common Stock:
Three Months Ended September 30, Nine Months Ended September 30,
2026 2025 $ Change 2026 2025 $ Change
Diluted income (loss) from continuing operations per share of Common Stock
$ 0.20 $ 0.17 $ 0.03 $ 0.59 $ 0.51 $ 0.08
Share-based compensation expense 0.03 0.01 0.02 0.07 0.05 0.02
Merger, restructuring, integration, and other (1)
- 0.01 (0.01) 0.02 0.02 -
Goodwill impairment (2)
- 0.01 (0.01) - 0.01 (0.01)
Interest rate swaps, net (3)
0.01 0.02 (0.01) 0.03 0.07 (0.04)
Loss on extinguishment of debt - 0.01 (0.01) - 0.01 (0.01)
Other, net (4)
0.01 0.01 - 0.03 0.01 0.02
Tax impact on adjustments (5)
(0.01) (0.01) - (0.03) (0.04) 0.01
Adjusted EPS (6)
$ 0.24 $ 0.23 $ 0.01 $ 0.71 $ 0.67 $ 0.04
________________
(1) During 2026, primarily includes restructuring expenses as well as costs related to the Origin AI Acquisition.
(2) Represents a goodwill impairment charge associated with the Multifamily Divestiture.
(3) Represents unrealized gains or losses on interest rate swaps presented in interest expense, net and other income (expense).
(4) Includes the impact related to the two-class method of EPS. Refer to Note 11 "Earnings per Share."
(5) Represents the tax impact on adjustments using the federal and state blended statutory rate.
(6) Amounts may not sum in this table due to rounding.
The increase in Adjusted EPS for the three months ended September 30, 2026, as compared to the prior year period, was primarily due to:
•$0.03 per share due to a decrease in diluted weighted average shares outstanding as a result of share repurchases, and
•$0.01 per share due to an increase in revenue net of related costs, partially offset by
•$(0.02) per share due to higher general and administrative costs, and
•$(0.01) per share due to an increase in the amortization of deferred subscriber acquisition costs.
The increase in Adjusted EPS for the nine months ended September 30, 2026, as compared to the prior year period, was primarily due to:
•$0.06 per share due to a decrease in our diluted weighted average shares outstanding as a result of share repurchases,
•$0.04 per share due to an increase in revenue net of related costs,
•$0.02 per share due to lower interest, and
•$0.01 per share due to a decrease in general and administrative costs, partially offset by
•$(0.03) per share due to an increase in the allowance for credit losses,
•$(0.03) per share due to an increase in the amortization of deferred subscriber acquisition costs, and
•$(0.02) per share due to an increase in depreciation and amortization.
The factors listed above exclude amounts that are outside of our definition of Adjusted EPS. Refer to the discussions above under "-Results of Operations" for further details.
Adjusted EBITDA
We define Adjusted EBITDA as income (loss) from continuing operations 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 items; (vii) impairment charges; and (viii) other non-cash or non-routine adjustments not necessary to operate our business.
We believe Adjusted EBITDA is useful to investors to measure the operational strength and performance of our business. We believe the presentation of Adjusted EBITDA is useful as it provides investors additional information about our operating profitability adjusted for certain non-cash items, non-routine items we do not expect to continue at the same level in the future, as well as other items 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 other peer companies using similar measures, although this measure may not be directly comparable to similar measures reported by other companies.
There are material limitations to using Adjusted EBITDA as it does not include certain significant items, including interest, taxes, depreciation and amortization, and other adjustments which directly affect our income (loss) from continuing operations (the most comparable GAAP measure). These limitations are best addressed by considering the economic effects of the excluded items independently and by considering Adjusted EBITDA in conjunction with income (loss) from continuing operations as calculated in accordance with GAAP.
The table below reconciles Adjusted EBITDA to income (loss) from continuing operations:
Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2026 2025 $ Change 2026 2025 $ Change
Income (loss) from continuing operations
$ 152,854 $ 143,512 $ 9,342 $ 477,272 $ 454,222 $ 23,050
Interest expense, net 101,615 112,617 (11,002) 302,262 349,294 (47,032)
Income tax expense (benefit) 56,508 55,109 1,399 175,438 164,890 10,548
Depreciation and intangible asset amortization 345,315 347,818 (2,503) 1,037,739 1,026,069 11,670
Amortization of deferred subscriber acquisition costs 70,861 64,040 6,821 207,470 186,547 20,923
Amortization of deferred subscriber acquisition revenue (88,285) (90,005) 1,720 (267,417) (268,494) 1,077
Share-based compensation expense 18,639 10,716 7,923 50,853 42,886 7,967
Merger, restructuring, integration, and other (1)
1,923 5,836 (3,913) 13,269 12,958 311
Goodwill impairment (2)
- 12,023 (12,023) - 12,023 (12,023)
Unrealized (gain) loss on interest rate swaps (3)
4,665 3,849 816 12,236 11,694 542
Loss on extinguishment of debt - 4,798 (4,798) - 11,241 (11,241)
Other, net (4)
870 5,333 (4,463) 110 6,741 (6,631)
Adjusted EBITDA
$ 664,965 $ 675,646 $ (10,681) $ 2,009,232 $ 2,010,071 $ (839)
________________
(1) During 2026, primarily includes restructuring expenses as well as costs related to the Origin AI Acquisition.
(2) Represents a goodwill impairment charge associated with the Multifamily Divestiture.
(3) Represents unrealized gains or losses on interest rate swaps presented in other income (expense).
(4) During 2025, primarily includes one-time costs associated with debt transactions.
The decrease in Adjusted EBITDA for the three months ended September 30, 2026, as compared to the prior year period, was primarily due to:
•higher general and administrative costs of $18 million, and
•lower monitoring and related services revenue, net of the associated costs of $12 million, partially offset by
•higher installation revenue, net of the associated costs and commissions of $18 million.
The decrease in Adjusted EBITDA for the nine months ended September 30, 2026, as compared to the prior year period, was primarily due to:
•an increase in the allowance for credit losses of $25 million, and
•lower monitoring and related services revenue, net of the associated costs of $15 million, partially offset by
•higher installation revenue, net of the associated costs and commissions, of $33 million, and
•lower general and administrative costs of $6 million.
The factors listed above exclude amounts that are outside of our definition of Adjusted EBITDA. Refer to the discussions above under "-Results of Operations" for further details.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and capital resources primarily consisted of the following:
(in thousands) September 30, 2026
Cash and cash equivalents $ 228,303
Restricted cash and restricted cash equivalents $ 26,258
Availability under First Lien Revolving Credit Facility $ 800,000
Uncommitted available borrowing capacity under 2020 Receivables Facility
$ 145,201
Carrying amount of total debt outstanding, including finance leases
$ 7,780,690
Liquidity
We expect our ongoing sources of liquidity to include cash generated from operations, borrowings under our credit facilities, and the issuance of equity and/or debt securities as appropriate given market conditions. Our future cash needs are expected to include cash for operating activities including working capital, principal and interest payments on our debt, income tax payments, capital expenditures, expected dividend payments to our stockholders, potential share repurchases, and other business initiatives as they arise.
We are a highly leveraged company with significant debt service requirements and have both fixed-rate and variable-rate debt. We may periodically seek to repay, redeem, repurchase, or refinance our indebtedness, or seek to repurchase and retire our outstanding securities through cash purchases in the open market, privately negotiated transactions, a 10b5-1 repurchase plan, or otherwise, and any such transactions may involve material amounts. Cash outflows for interest payments are not consistent between quarters, with larger outflows occurring in the first and third quarters, and may vary as a result of our variable rate debt.
We believe our cash position, available borrowing capacity under our credit agreements, and cash provided by operating activities are, and will continue to be, adequate to meet our operational and business needs in the next twelve months, as well as our long-term liquidity needs.
Material Cash Requirements
There have been no significant changes to our material cash requirements, commitments and contingencies, or off-balance sheet arrangements from those disclosed in our 2025 Annual Report, except as discussed below.
Debt Principal
In April 2026, we redeemed the remaining outstanding balance of our First Lien Notes due 2026. Our next debt maturity will occur in August 2027 with respect to the remaining outstanding balance of our First Lien Notes due 2027. We intend, and believe that we will have the ability, to refinance or redeem these notes before or at maturity.
Share Repurchase Plans
In February 2026, our Board of Directors approved the 2026 Share Repurchase Plan, pursuant to which we are authorized to repurchase, through April 30, 2029, up to a maximum aggregate amount of $1.5 billion of shares of our Common Stock.
The 2026 Share Repurchase Plan allows us to purchase Common Stock, from time to time, in one or more open market or privately negotiated transactions, including pursuant to Rule 10b5-1 or Rule 10b-18 of the Exchange Act, or pursuant to one or more accelerated share repurchase agreements, subject to certain requirements and other factors. We are not obligated to repurchase any of our shares of Common Stock, and the timing and amount of any repurchases depends on legal requirements, market conditions, stock price, the availability of the safe harbor provided by Rule 10b-18 under the Exchange Act, alternative uses of capital, and other factors.
During the first quarter of 2026, we repurchased, and subsequently retired, 18 million shares of our Common Stock in the open market pursuant to Rule 10b5-1 and/or Rule 10b-18 of the Exchange Act under the 2026 Share Repurchase Plan in multiple transactions for a total of $116 million (or $6.57 per share).
During the second quarter of 2026, we repurchased, and subsequently retired, 39 million shares of our Common Stock in the open market pursuant to Rule 10b5-1 and/or Rule 10b-18 of the Exchange Act under the 2026 Share Repurchase Plan in multiple transactions for a total of $267 million (or $6.85 per share).
Additionally, in May 2026, we repurchased, and subsequently retired, 29 million shares of our Common Stock under the 2026 Share Repurchase Plan for $211 million (or $7.25 per share) in connection with a secondary offering of our Common Stock by Apollo. Refer to Note 14 "Related Party Transactions" for further information.
During the third quarter of 2026, we repurchased, and subsequently retired, 3 million shares of our Common Stock under the 2026 Share Repurchase Plan in the open market pursuant to Rule 10b5-1 and/or Rule 10b-18 of the Exchange Act in multiple transactions for a total of $23 million (or $6.81 per share).
As of September 30, 2026, there was $883 million remaining under the 2026 Share Repurchase Plan.
Other Contractual Obligations
In May 2026, we entered into an amendment to the Google Cloud Agreement Addendum, which replaced our initial purchase commitment. Under the amended terms, we committed to purchase $235 million of Google Cloud Platform services over a five-year period, ending May 2031, with annual minimum spend commitments that allow for flexibility in the amount spent in any given period.
As of September 30, 2026, spend under the amended Google Cloud Agreement Addendum was not material. Refer to Note 12 "Commitments and Contingencies."
Cash Taxes
During the nine months ended September 30, 2026, we made tax payments, net of refunds, of $37 million, including excise taxes. The Company's estimated tax payments may fluctuate each quarter based on our financial results and tax positions taken.
Long-Term Debt
Significant changes and activity related to our long-term debt since our 2025 Annual Report are discussed below. Refer to Note 6 "Debt" for additional information.
First Lien Revolving Credit Facility
During the nine months ended September 30, 2026, we borrowed and repaid $165 million under the First Lien Revolving Credit Facility.
Term Loan A Credit Agreement
In May 2026, we amended and restated the Term Loan A Credit Agreement, which provided for the issuance of $100 million of incremental borrowings under the Term Loan A due 2030. We used the net proceeds for general corporate purposes, including share repurchases.
In August 2026, we further amended and restated the Term Loan A Credit Agreement, which provided for the issuance of $100 million of incremental borrowings under the Term Loan A due 2030. We intend to use the net proceeds for general corporate purposes, which may include the redemption of a portion of our First Lien Notes due 2027.
First Lien Notes due 2026 Redemption
In April 2026, we redeemed the remaining outstanding balance of the First Lien Notes due 2026 at maturity for a redemption price of $75 million using cash on hand.
2020 Receivables Facility
In March 2026, we amended the agreement governing the 2020 Receivables Facility to extend the uncommitted revolving period to April 2026.
In April 2026, we amended the agreement governing the 2020 Receivables Facility to extend the uncommitted revolving period to April 2027, and to make certain amendments to advance rates, hedge rates, and other related provisions.
Debt Covenants
As of September 30, 2026, we were in compliance with all financial covenant and other maintenance tests for all our debt obligations. We do not believe there is a material risk of future noncompliance with our financial covenant and other maintenance tests.
Cash Flow Analysis
The amounts and discussion below include cash flows from both continuing operations and discontinued operations, as appropriate, consistent with the presentation on the Statements of Cash Flows.
Nine Months Ended September 30,
(in thousands) 2026 2025 $ Change
Net cash provided by (used in):
Operating activities $ 1,744,876 $ 1,510,585 $ 234,291
Investing activities $ (900,235) $ (920,985) $ 20,750
Financing activities $ (698,620) $ (622,631) $ (75,989)
Cash Flows from Operating Activities
The increase in net cash provided by operating activities, as compared to the prior year period, was primarily due to lower cash taxes and interest payments, the timing of certain payroll-related payments, as well as changes in assets and liabilities due to the volume and timing of other operating cash receipts and payments with respect to when the transactions are reflected in earnings, partially offset by a higher proportion of outright sales transactions. Refer to the discussions above under "-Results of Operations" for further details.
Cash Flows from Investing Activities
The decrease in net cash used in investing activities, as compared to the prior year period, was primarily due to:
•a decrease in dealer generated customer accounts and bulk account purchases of $125 million primarily due to lower bulk account purchases during 2026 and
•a decrease in subscriber system assets expenditures of $73 million primarily due to our continued transition to an outright sales model, partially offset by
•outflows of $164 million related to the Origin AI Acquisition in the current year.
Cash Flows from Financing Activities
The increase in net cash used in financing activities, as compared to the prior period, was primarily due to:
•an increase in net repayments on our 2020 Receivables Facility of $71 million, and
•higher share repurchases of $17 million, partially offset by
•an increase in borrowings, net of repayments, on long-term debt of $29 million, primarily related to borrowings under the Term Loan A due 2030 in the current year as compared to the issuance of the First Lien Term Loan B-2 due 2032 in the prior year, partially offset by the series of partial redemptions of the First Lien Notes due 2026 in the periods presented.
CRITICAL ACCOUNTING ESTIMATES
We disclosed our critical accounting estimates in our 2025 Annual Report, which include estimates prepared in accordance with GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations.
Critical accounting estimates are based on, among other things, estimates, assumptions, and judgments made by management that include inherent risks and uncertainties. Our estimates are based on relevant information available at the end of each period. Actual results could differ materially from these estimates under different assumptions or market conditions.
There have been no material changes to our critical accounting estimates as disclosed in our 2025 Annual Report.
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains certain information that may constitute "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. While we have specifically identified certain information as being forward-looking in the context of its presentation, we caution you that all statements contained in this Form 10-Q that are not clearly historical in nature, including statements regarding the ADT Solar Exit; the Commercial Divestiture; the costs of the proposed Merger with Abode Parent, LLC, an affiliate of Thrive Holdings; the ADT Solar Exit including that such costs may exceed our best estimates; the changes to our internal control over financial reporting in 2026 resulting from ongoing information technology system implementations; the integration of strategic bulk purchases of customer accounts and other acquired businesses; any repurchases of our common stock under an authorized share repurchase plan; our ability to refinance or reduce debt or improve leverage ratios, or to achieve or maintain our leverage goals; anticipated financial performance; management's plans and objectives for future operations; the expected benefits of the Origin AI Acquisition, including the expected integration of Origin AI's technology into the Company's products and services; the successful development, commercialization, and timing of new or joint products; the successful development, commercialization and integration of artificial intelligence ("AI") technologies into the Company's products, services, and operations; business prospects; outcomes of regulatory proceedings; market conditions; our ability to deploy our business continuity and disaster plans and procedures to successfully respond to catastrophic events; our strategic partnership and ongoing relationship with Google; the expected timing of product commercialization with our external partners, including Google, or any changes thereto; the successful internal development, commercialization, and timing of our next generation platform and innovative offerings, including ADT+ and those incorporating AI or advanced sensing capabilities; the successful launch, adoption, and success of ADT Blu; 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 are forward-looking in nature. Forward-looking statements are contained principally in the section of this report entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Without limiting the generality of the preceding sentences, any time we use the words "ongoing," "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, we intend 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.
Particular uncertainties that could cause our actual results to be materially different than those expressed in our forward- looking statements include, without limitation:
•the risk that the proposed Merger described above may not be completed in a timely manner or at all;
•the failure to receive, on a timely basis or otherwise, the required approval of the Merger by our stockholders;
•the possibility that any or all of the various other conditions to the consummation of the Merger may not be satisfied or waived, including the failure to receive any required regulatory approvals from any applicable governmental entities (or any conditions, limitations or restrictions placed on such approvals);
•the possibility that competing offers or acquisition proposals for the Company will be made;
•the occurrence of any event, change or other circumstance that could give rise to the termination of the Merger Agreement relating to the Merger, including in circumstances which would require us to pay a termination fee;
•the effect of the pendency of the Merger on our ability to attract, motivate, retain or hire key executives, personnel and employees, our ability to maintain relationships with our customers, suppliers and other business counterparties, or our operating results and business generally;
•risks related to the Merger diverting management's attention from our ongoing business operations;
•the risk that our stock price may decline significantly if the Merger is not consummated;
•the risk of stockholder litigation in connection with the Merger, including resulting expense or delay;
•risks related to the Commercial Divestiture and ADT Solar Exit, including our business becoming less diversified and the possible diversion of management's attention from our core business operations;
•our ability to keep pace with rapid technological changes and other industry changes;
•risks related to the expansion and further development of our next-generation platform and our efforts to migrate our information technology infrastructure, including our customer relationship management and enterprise resource planning systems, to the cloud;
•our ability to effectively implement our strategic partnership with, or utilize any of the amounts invested in us by, Google;
•the impact of supply chain disruptions;
•our ability to maintain and grow our existing customer base and to integrate strategic bulk purchases of customer accounts;
•our ability to sell our products and services or launch new products and services, including those incorporating AI or advanced sensing capabilities, in highly competitive markets with non-traditional entrants such as technology, telecommunications, and broadband companies, including the home security and automation market, and to achieve market acceptance with acceptable margins;
•our ability to successfully execute and scale our DIY offerings, including customer adoption, digital acquisition, and expansion into new distribution channels such as traditional retail and e-commerce channels;
•our ability to successfully upgrade obsolete equipment installed at our customers' premises in an efficient and cost-effective manner;
•any changes to regulations or laws, including those related to labor, tax, privacy (particularly as they relate to the collection, storage, and use of highly sensitive customer data, including video and audio recordings), telemarketing, email marketing, and consumer protection;
•any impacts from, or changes to, current global, economic, sovereign and political conditions and uncertainties, including inflationary pressures, high interest rates, and the effects of, and uncertainty regarding, new or proposed tariff or trade regulations, or any impacts on the global economy or consumer discretionary spending due to tariffs or otherwise;
•any material changes to the valuation allowances we take with respect to our deferred tax assets;
•the impact of cyber attacks or related breaches with respect to information technology systems, cybersecurity, or data security involving us, our business partners, or other third parties whose systems are interconnected with ours, and any similar future or still undetected attacks or incidents;
•risks related to the development, governance, deployment, and use of AI in our products, services, and operations, including technological and legal uncertainties surrounding AI technologies;
•our dependence on third-party providers, suppliers, and dealers to enable us to produce and distribute our products and services in a cost-effective manner that protects our brand;
•our ability to successfully implement an equipment ownership model that best satisfies the needs of our customers and to successfully implement and maintain our receivables securitization financing agreement or similar arrangements;
•our ability to successfully pursue alternate business opportunities and strategies;
•our ability to successfully integrate acquired businesses, including bulk acquisitions of customer accounts, technologies, and intellectual property, and to realize the anticipated benefits of such acquisitions in an efficient and cost-effective manner;
•our ability to meet our debt service obligations and the amount and timing of our cash flows and earnings, which may be impacted by customer, competitive, supplier and other dynamics and conditions;
•our ability to maintain or improve margins through business efficiencies;
•risks related to the restatement of our consolidated financial statements included in our Amendment No. 1 to our Annual Report on Form 10-K for the year ended December 31, 2022 (the "Amended 2022 Annual Report") and in our Quarterly Reports on Form 10-Q/A for the quarters ended September 30, 2022, and March 31, 2023, each as filed with the SEC on July 27, 2023;
•any litigation or investigation related to such restatements;
•our ability to maintain effective internal control over financial reporting ("ICFR") and disclosure controls and procedures ("DCPs"), including our ability to remediate any potential material weakness in our ICFR, the timing of any such remediation, and anticipated changes to our ICFR from ongoing system implementations, as well as the ability to maintain effective DCPs at a reasonable assurance level;
•the expected shift in our transaction mix (including increased outright equipment sales) and the related effects to the timing and mix of revenue and costs; and
•the other factors that are described under the heading "Risk Factors" in our 2025 Annual Report.
Forward-looking statements and information involve risks, uncertainties, and other factors that could cause actual results to differ materially from those expressed or implied in, or reasonably inferred from, such statements, including without limitation, the risks and uncertainties disclosed or referenced under the heading "Risk Factors" in Part II, Item 1A of this Quarterly Report on Form 10-Q and Part I, Item 1A in our 2025 Annual Report. Therefore, caution should be taken not to place undue reliance on any such forward-looking statements. Much of the information in this report that looks toward future performance is based on various factors and important assumptions about future events that may or may not actually occur. As a result, our operations and financial results in the future could differ materially and substantially from those we have discussed in the forward-looking statements included in this Quarterly Report on Form 10-Q. Any forward-looking statement made in this Quarterly Report on Form 10-Q speaks only as of the date on which it is made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future developments, or otherwise unless required by law.
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