ADT Inc. (NYSE: ADT), a leading provider of security, automation,
and smart home solutions serving consumer and business customers in
the United States, today reported the results for its third quarter
of 2019.
THIRD QUARTER 2019 HIGHLIGHTS COMPARED TO PRIOR
YEAR(1)
- Total revenue of $1,301 million, up 13%
- Net loss of $182 million, compared to net loss of $236
million
- Year to date net cash provided by operating activities of
$1,459 million, compared to $1,406 million
- Year to date net cash used in investing activities of $1,157
million, compared to $1,084 million
- Year to date net cash used in financing activities of $510
million, compared to $187 million
- Adjusted EBITDA of $624 million, compared to $610 million
- Year to date Free Cash Flow before special items of $459
million, compared to $479 million
- Trailing twelve-month revenue payback of 2.4 years
- Trailing twelve-month gross customer revenue attrition of
13.5%, compared to 13.4%(2)
"Our strong third quarter performance, driven by
revenue growth and continued operating efficiencies, contributed to
strong cash flows," stated Jim DeVries, ADT's President and CEO.
"Our commercial operations produced double digit organic growth for
the second consecutive quarter, while in residential, we continued
to efficiently acquire customers and enhance customer lifetime
value with over 80% of new installations including interactive
services. With the sale of our Canadian operations, our resources
are allocated to the continued growth of our US residential and
commercial operations, and focused on accelerating the expansion of
our consumer platform, as evidenced by our new partnership with
Lyft and the recent acquisition of I-View Now. Combined with the
strong momentum in our core business, with these new innovative
pursuits we are well positioned to enhance shareholder value.”
THIRD QUARTER 2019 RESULTS(1)
Total revenue was $1,301 million, up 13%, or
$152 million year-over-year. Monitoring and related services
revenue (“M&S revenue”), which comprised $1.1 billion of total
revenue, was up 6%, or $64 million over the same period last year.
The growth in M&S revenue was primarily due to higher recurring
monthly revenue (RMR), which was up 3% to $351 million, driven
primarily by incremental RMR from recent acquisitions. In addition
to M&S revenue, installation and other revenue was up by an
additional $88 million from last year as a result of the successful
execution of the Company’s commercial growth strategy.
The Company reported a net loss of $182 million,
compared to prior year's net loss of $236 million. The improvement
was primarily due to the non-recurrence of the prior year's $213
million loss on extinguishment of debt related to the redemption of
the Company's prior mandatorily redeemable preferred securities, as
well as a $29 million increase in income tax benefit. The Company's
results were also impacted by a goodwill impairment of $45 million
and loss on business held for sale of $55 million, both related to
the sale of our Canadian operations, as well as higher revenue and
general increases in operating expenses largely due to recent
acquisitions. Basic and diluted earnings per share was $(0.25)
versus $(0.31) in the prior year. Diluted earnings per share before
special items was $(0.02) in both the current and prior year
periods.
Adjusted EBITDA was $624 million, up 2%, or $15
million year-over-year. Adjusted EBITDA growth was driven by higher
M&S and installation revenue, partially offset by the
associated costs and an increase in selling, general and
administrative expenses, excluding items outside of the Company’s
definition of Adjusted EBITDA.
Trailing twelve-month gross customer revenue
attrition(2) was 13.5%, compared to 13.4%, an increase of
approximately 10 basis points year-over-year. The change is
primarily due to a higher level of dealer disconnects, partially
offset by a lower level of direct disconnects.
Trailing twelve-month customer revenue payback
was 2.4 years, consistent with the prior period. While the trailing
twelve-month customer revenue payback metric has remained
relatively flat, recent trends in revenue payback efficiency have
improved.
Year to date net cash provided by operating
activities was $1,459 million, up from $1,406 million in the prior
year. The increase in cash flows provided by operating activities
was primarily due to a decrease in interest payments of $72
million, which was largely due to the full redemption of our
mandatorily redeemable preferred securities in July of 2018, and an
increase in monitoring and related services revenue combined with
an increase in transactions in which equipment is sold outright to
customers, partially offset by the associated costs and an increase
in selling, general and administrative expenditures.
Year to date net cash used in investing
activities was $1,157 million, compared to $1,084 million in the
prior year. The increase in cash flows used in investing activities
was primarily due to an increase in cash used for business
acquisitions, net of cash acquired. The remainder of the increase
is due to the volume and spend on subscriber and non-subscriber
capital expenditures.
Year to date net cash used in financing
activities was $510 million and consisted of the net repayment of
long-term borrowings, payments for the repurchase and retirement of
common stock, payments associated with deferred financing costs in
connection with the re-financing of debt, and dividend payments on
common stock. In the prior year, net cash used in financing
activities consisted primarily of the net repayment of long-term
borrowings and dividend payments on common stock, offset by net
proceeds from the IPO.
Year to date Free Cash Flow before special items
was $459 million, down from $479 million in the prior year. The
change is primarily due to an increased level of capital
expenditures and higher cash interest, excluding the cash interest
paid upon the redemption of the mandatorily redeemable preferred
securities in July of 2018, partially offset by higher Adjusted
EBITDA and timing benefits associated with certain working capital
items.
HIGHLIGHTS
Sale of Canadian Operations –
On September 30, 2019, the Company entered into an agreement to
sell the Company's Canadian operations to TELUS Corporation, which
sale was completed on November 5, 2019.
Continued Expansion of Commercial
Footprint – ADT Commercial continued to expand during the
third quarter, with the purchase of FAS Systems Group in Denver and
Fusion Fire Protection in the Washington, D.C. metropolitan area.
These additions enhance fire alarm, life safety, and fire sprinkler
systems capabilities in the West and Mid-Atlantic regions to
further support enterprise-level and National Accounts commercial
customers.
Enhanced Mobile Offering – In
October 2019, the Company entered into a partnership to integrate a
mobile safety solution into the Lyft platform. The ADT innovation
team is working closely with Lyft on a pilot expected to launch in
early 2020. The pilot will include nine U.S. markets including
Chicago, Los Angeles and New Jersey, with potential to implement
nationally to Lyft’s 30 million riders and two million drivers.
This partnership is part of the Company's expansion into new areas
of security beyond residential and commercial, with a focus on our
mobile strategy.
Investing in Differentiated Professional
Monitoring – In October 2019, the Company completed the
acquisition of I-View Now, a leading video alarm verification
service. I-View Now’s verification technology, paired with ADT's
core monitoring strengths, is intended to help reduce false alarms
and optimize priority response from emergency services.
Continued Expansion of Consumer
Financing Pilot – The Company’s consumer financing pilot,
which launched in April 2019, further expanded to include more than
twenty markets. Under this consumer financing program, customers
have the opportunity to finance the upfront costs of becoming an
ADT customer.
Celebrated 100th LifeSaver –
ADT’s signature Corporate Social Responsibility (CSR) Program
reached an important milestone, celebrating its 100th LifeSaver
with a Minnesota family who recently experienced lethal amounts of
carbon monoxide in their home. Monitored protection from ADT helped
the family survive and prompted a quick response from local
firefighters and police. Since 2011, ADT has celebrated LifeSaver
events in 37 states and Puerto Rico, as well as 5 Canadian
provinces. More than 600 ADT employees have been honored with ADT’s
highest recognition and over $550,000 has been awarded to nearly
100 first responder agencies, including several volunteer fire
departments.
Debt Refinancing – In September
2019, the Company issued an additional $600 million aggregate
principal amount of 5.750% first-priority senior secured notes due
2026. The proceeds, along with cash on hand, were used to (a) repay
approximately $300 million of a $3.4 billion first lien term loan
due 2022, of which the remaining $3.1 billion was refinanced and
replaced in September 2019 with a first lien term loan due 2026,
and (b) repurchase and redeem the full $300 million of a first lien
note due 2020, which was completed in October 2019.
Quarterly Dividend – On
November 12, 2019, the Company announced a dividend of $0.035
per share to common stockholders of record on December 13, 2019.
The dividend will be distributed on January 3, 2020.
Special Dividend – On
November 12, 2019, the Company also announced a special
dividend of $0.70 per share to common stockholders of record on
December 13, 2019. This special dividend will be distributed
on December 23, 2019. The Company had previously announced on
October 1, 2019 that a one-time special dividend had been
authorized, subject to certain conditions and approvals, which have
now been satisfied.
2019 OUTLOOK
Despite the sale of Canadian assets and
operations on November 5, 2019 and the elimination of the financial
contribution from ADT Canada for the last two months of the year,
the Company is reiterating its financial outlook ranges for
full-year 2019 due to the strength of its U.S. business. These
financial outlook ranges include Total Revenue of $5.00 billion to
$5.15 billion, Adjusted EBITDA of $2.47 billion to $2.50 billion,
and Free Cash Flow before special items of $570 million to $610
million. Consistent with LTM Q3 2019 Gross Customer Revenue
Attrition of 13.5%, the Company is updating its 2019 guidance to
approximately 13.5%.(3)(4)
The Company is not providing a quantitative
reconciliation of its financial outlook for Adjusted EBITDA and
Free Cash Flow before special items to net income (loss) and net
cash provided by operating activities, which are their respective
corresponding GAAP measures, because these GAAP measures that are
excluded from the Company’s non-GAAP financial outlook are
difficult to reliably predict or estimate without unreasonable
effort due to their dependence on future uncertainties, such as
special items discussed below under the heading — Non-GAAP
Measures “Adjusted EBITDA” and “Free Cash Flow before special
items.” 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.
____________________________
(1) |
|
All variances are year-over-year unless otherwise noted. Adjusted
EBITDA, Free Cash Flow before special items, Diluted earnings per
share before special items, Commercial Organic Revenue, Commercial
Inorganic Revenue, and Commercial Organic Revenue Growth 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, RMR additions, and Revenue
Payback are approximated as there may be variations to reported
results in each period due to certain adjustments the Company might
make in connection with the integration over several periods of
acquired companies that calculated these metrics differently, or
otherwise, including periodic reassessments and refinements in the
ordinary course of business. These refinements, for example, may
include changes due to systems conversion or historical methodology
differences in legacy systems. |
|
|
(2) |
|
Consistent with the Company’s original 2019 guidance, as of January
1, 2019, in conjunction with the acquisition of LifeShield LLC, the
Company will be presenting gross customer revenue attrition
excluding existing and new do-it-yourself (“DIY”) customers. As a
result, trailing twelve-month gross customer revenue attrition
excludes DIY customers. For all communications covering periods
prior to January 1, 2019, trailing twelve-month gross customer
revenue attrition included DIY customers. Including DIY customers
as of September 30, 2018 rounds to the same percentage as presented
in this communication. |
|
|
(3) |
|
Guidance excludes 3G and CDMA radio conversion costs. While there
are many variables involved in those costs, including retention
levels, system upgrade rates, revenue opportunities, cost-sharing
opportunities, and possible technology solutions, the Company
currently estimates aggregate net expenditures could be between
$200 million – $325 million through 2022. For 2019, the Company
expects to incur net costs of approximately $25 million – $35
million in special items related to these conversions, which are
excluded from our guidance. |
|
|
(4) |
|
Guidance excludes wholesale customers who outsource monitoring to
ADT and impacts from DIY given the Company’s 2019 acquisition of
LifeShield; calculated on a trailing twelve-months basis. |
|
|
|
Media
Inquiries: |
Investor Relations: |
Paul Wiseman -
ADTPaulWiseman@adt.com |
Jason Smith - ADT tel:
888.238.8525investorrelations@adt.com |
|
|
Conference Call
Management will discuss the Company’s third
quarter results during a conference call and webcast today
beginning at 5:00 p.m. (ET). The conference call can be accessed as
follows:
- By dialing 1-877-407-3982 (domestic) or 1-201-493-6780
(international) and requesting the ADT Third Quarter 2019 Earnings
Conference Call
- Live webcast accessed through ADT’s website
at investor.adt.com
An audio replay of the conference call will be
available from approximately 8:00 pm ET on November 12, 2019 until
11:59 pm ET on November 26, 2019, and can be accessed by dialing
1-844-512-2921 (domestic) or 1-412-317-6671 (international), and
providing the passcode, 13695851 or by accessing ADT's website
at investor.adt.com. 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 is a leading provider of security,
automation, and smart home solutions serving consumer and business
customers through more than 200 locations, 9 monitoring centers,
and the largest network of security professionals in the United
States. The Company offers many ways to help protect customers by
delivering lifestyle-driven solutions via professionally installed,
do-it-yourself, mobile, and digital-based offerings for
residential, small business, and larger commercial customers. For
more information, please visit www.adt.com or follow on
Twitter, LinkedIn, Facebook, and Instagram.
ADT Inc.1501 Yamato
RoadBoca Raton, FL 33431561.322.7235www.adt.com
NON-GAAP MEASURES
To provide investors with additional information
in connection with our results as determined in accordance with
generally accepted accounting principles in the United States
(“GAAP”), we disclose Adjusted EBITDA, Adjusted EBITDA margin, Free
Cash Flow, Free Cash Flow before special items, Net Income (Loss)
before special items, Diluted Earnings Per Share (“EPS”) before
special items, Commercial Organic Revenue, Commercial Inorganic
Revenue, and Commercial Organic Revenue Growth as 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, operating income, cash flows, or any other measure
calculated in accordance with GAAP, and may not be comparable to
similarly titled measures reported by other companies.
Adjusted EBITDA
We believe that the presentation of Adjusted
EBITDA is appropriate to provide additional 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, (ix) financing and consent fees, (x) foreign
currency gains/losses, (xi) acquisition related adjustments, and
(xii) other charges and non-cash items.
There are material limitations to using Adjusted
EBITDA. Adjusted EBITDA does not take into account certain
significant items, including depreciation and amortization,
interest, taxes, and other adjustments which directly affect our
net income or loss. These limitations are best addressed by
considering the economic effects of the excluded items
independently, and by considering Adjusted EBITDA in conjunction
with net income or loss as calculated in accordance with GAAP. The
Adjusted EBITDA discussion above is also applicable to its margin
measure, which is calculated as Adjusted EBITDA as a percentage of
monitoring and related services revenue.
Free Cash Flow
We believe that the presentation of Free Cash
Flow is appropriate to provide additional information to investors
about our ability to repay debt, make other investments, and pay
dividends.
We define Free Cash Flow as cash flows from
operating activities less cash outlays related to capital
expenditures. We define capital expenditures to include purchases
of property, plant, and equipment; subscriber system asset
additions; and accounts purchased through our network of authorized
dealers or third parties outside of our authorized dealer network.
These items are subtracted from cash flows from operating
activities because they represent long-term investments that are
required for normal business activities.
Free Cash Flow adjusts for cash items that are
ultimately within management’s discretion to direct, and therefore,
may imply that there is less or more cash that is available than
the most comparable GAAP measure. Free Cash Flow is not intended to
represent residual cash flow for discretionary expenditures since
debt repayment requirements and other non-discretionary
expenditures are not deducted. These limitations are best addressed
by using Free Cash Flow in combination with the cash flows as
calculated in accordance with GAAP.
Free Cash Flow before special items
We define Free Cash Flow before special items as
Free Cash Flow adjusted for payments related to (i) financing and
consent fees, (ii) restructuring and integration, (iii) integration
related capital expenditures, (iv) radio conversion costs, and (v)
other payments or receipts that may mask the operating results or
business trends of the Company. As a result, subject to the
limitations described below, Free Cash Flow before special items is
a useful measure of our cash available to repay debt, make other
investments, and pay dividends.
Free Cash Flow before special items adjusts for
cash items that are ultimately within management’s discretion to
direct, and therefore, may imply that there is less or more cash
that is available than the most comparable GAAP measure. Free Cash
Flow before special items is not intended to represent residual
cash flow for discretionary expenditures since debt repayment
requirements and other non-discretionary expenditures are not
deducted. These limitations are best addressed by using Free Cash
Flow before special items in combination with the GAAP cash flow
numbers.
Net Income (Loss) and Diluted EPS before special
items
Net Income (Loss) before special items is
defined as net income (loss) adjusted for (i) merger,
restructuring, integration, and other, (ii) financing and consent
fees, (iii) foreign currency gains/losses, (iv) losses on
extinguishment of debt, (v) radio conversion costs, (vi)
share-based compensation expense, (vii) the change in the fair
value of interest rate swaps not designated as hedges, (viii)
acquisition related adjustments, (ix) other charges and non-cash
items, and (x) the impact these adjusted items have on taxes.
Diluted EPS before special items is diluted EPS adjusted for the
items above. The difference between Net Income (Loss) before
special items and Diluted EPS before special items, and net income
(loss) and diluted EPS (the most comparable GAAP measures) consists
of the impact of the special items noted above on the applicable
GAAP measure. The Company believes that Net Income (Loss) and
Diluted EPS both before special items 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. The limitation of these measures is
that they exclude the impact (which may be material) of items that
increase or decrease our reported operating income, operating
margin, net income or loss, and EPS. This limitation is best
addressed by using the non-GAAP measures in combination with the
most comparable GAAP measures in order to better understand the
amounts, character, and impact of any increase or decrease on
reported results.
Commercial Organic / Inorganic Revenue and
Commercial Organic Revenue Growth
We believe that the presentation of commercial
organic revenue, commercial inorganic revenue, and commercial
organic revenue growth is appropriate to provide additional
information to investors about the periodic growth of our business
on a consistent basis.
We define commercial organic revenue as revenue
associated with commercial and national accounts adjusted for
commercial inorganic revenue, which represents incremental total
revenue associated with commercial and national accounts from
acquisitions until there is a full twelve-month overlap from the
date of acquisition. We define commercial organic revenue growth as
the increase in commercial organic revenue over a stated
period.
There are material limitations to using
commercial organic revenue, commercial inorganic revenue, and
commercial organic revenue growth as they do not take into account
all revenue in a given period. These limitations are best addressed
by considering the economic effects of the excluded items
independently, and by considering commercial organic revenue,
commercial inorganic revenue, and commercial organic revenue growth
in conjunction with revenue determined in accordance with GAAP.
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, including under the heading 2019 Financial
Outlook. 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, business
prospects, outcome of regulatory proceedings, market conditions and
other matters. 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. 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, risk factors that are
described in the Company’s Annual Report on Form 10-K and other
filings with the Securities and Exchange Commission, including the
sections entitled “Risk Factors” and “Management’s Discussion and
Analysis of Financial Condition and Results of Operations”
contained therein.
|
ADT INC. AND SUBSIDIARIESCONDENSED
CONSOLIDATED BALANCE SHEETS(in
millions)(Unaudited) |
|
|
|
|
|
September 30,2019 |
|
December 31,2018 |
Assets |
|
|
|
Current assets: |
|
|
|
Cash and cash equivalents |
$ |
156 |
|
$ |
363 |
Accounts receivable trade, net |
285 |
|
246 |
Inventories, net |
106 |
|
89 |
Work-in-progress |
40 |
|
26 |
Assets held for sale |
591 |
|
— |
Prepaid expenses and other current assets |
141 |
|
130 |
Total current assets |
1,319 |
|
854 |
Property and equipment, net |
337 |
|
327 |
Subscriber system assets,
net |
2,775 |
|
2,908 |
Intangible assets, net |
6,816 |
|
7,488 |
Goodwill |
4,957 |
|
5,082 |
Deferred subscriber acquisition
costs, net |
494 |
|
430 |
Other assets |
248 |
|
120 |
Total assets |
$ |
16,947 |
|
$ |
17,209 |
|
|
|
|
Liabilities and
stockholders' equity |
|
|
|
Current liabilities: |
|
|
|
Current maturities of long-term debt |
$ |
213 |
|
$ |
58 |
Accounts payable |
297 |
|
221 |
Deferred revenue |
344 |
|
335 |
Liabilities held for sale |
129 |
|
— |
Accrued expenses and other current liabilities |
492 |
|
398 |
Total current liabilities |
1,474 |
|
1,012 |
Long-term debt |
9,638 |
|
9,944 |
Deferred subscriber acquisition
revenue |
645 |
|
544 |
Deferred tax liabilities |
1,190 |
|
1,342 |
Other liabilities |
289 |
|
141 |
Total liabilities |
13,236 |
|
12,984 |
Total stockholders' equity |
3,711 |
|
4,225 |
Total liabilities and stockholders' equity |
$ |
16,947 |
|
$ |
17,209 |
Note: amounts may not add due to rounding
|
ADT INC. AND SUBSIDIARIESCONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS(in millions,
except per share data)(Unaudited) |
|
|
|
|
|
For the Three Months Ended |
|
For the Nine Months Ended |
|
September 30, 2019 |
|
September 30, 2018 |
|
September 30, 2019 |
|
September 30, 2018 |
Monitoring and related services |
$ |
1,094 |
|
|
$ |
1,029 |
|
|
$ |
3,249 |
|
|
$ |
3,070 |
|
Installation and other |
207 |
|
|
119 |
|
|
578 |
|
|
326 |
|
Total revenue |
1,301 |
|
|
1,148 |
|
|
3,827 |
|
|
3,396 |
|
|
|
|
|
|
|
|
|
Cost of revenue (exclusive of
depreciation and amortization shown separately below) |
357 |
|
|
263 |
|
|
1,021 |
|
|
758 |
|
Selling, general and
administrative expenses |
379 |
|
|
295 |
|
|
1,048 |
|
|
923 |
|
Depreciation and intangible asset
amortization |
506 |
|
|
475 |
|
|
1,503 |
|
|
1,447 |
|
Merger, restructuring,
integration, and other |
10 |
|
|
(7 |
) |
|
23 |
|
|
2 |
|
Goodwill impairment |
45 |
|
|
— |
|
|
45 |
|
|
— |
|
Loss on business held for
sale |
55 |
|
|
— |
|
|
55 |
|
|
— |
|
Operating (loss) income |
(51 |
) |
|
122 |
|
|
132 |
|
|
267 |
|
Interest expense, net |
(152 |
) |
|
(152 |
) |
|
(466 |
) |
|
(501 |
) |
Loss on extinguishment of
debt |
(15 |
) |
|
(213 |
) |
|
(103 |
) |
|
(275 |
) |
Other income |
— |
|
|
1 |
|
|
3 |
|
|
29 |
|
Loss before income taxes |
(218 |
) |
|
(243 |
) |
|
(434 |
) |
|
(480 |
) |
Income tax benefit |
36 |
|
|
8 |
|
|
82 |
|
|
20 |
|
Net loss |
$ |
(182 |
) |
|
$ |
(236 |
) |
|
$ |
(352 |
) |
|
$ |
(460 |
) |
|
|
|
|
|
|
|
|
Net loss per
share: |
|
|
|
|
|
|
|
Basic and diluted |
$ |
(0.25 |
) |
|
$ |
(0.31 |
) |
|
$ |
(0.47 |
) |
|
$ |
(0.62 |
) |
|
|
|
|
|
|
|
|
Weighted-average number
of shares: |
|
|
|
|
|
|
|
Basic and diluted |
740 |
|
|
755 |
|
|
749 |
|
|
745 |
|
Note: amounts may not add due to rounding
|
ADT INC. AND SUBSIDIARIESCONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS(in
millions)(Unaudited) |
|
|
|
For the Nine Months Ended |
|
September 30, 2019 |
|
September 30, 2018 |
Cash flows from operating
activities: |
|
|
|
Net loss |
$ |
(352 |
) |
|
$ |
(460 |
) |
Adjustments to reconcile net loss
to net cash provided by operating activities: |
|
|
|
Depreciation and intangible asset amortization |
1,503 |
|
|
1,447 |
|
Amortization of deferred subscriber acquisition costs |
59 |
|
|
43 |
|
Amortization of deferred subscriber acquisition revenue |
(79 |
) |
|
(56 |
) |
Share-based compensation expense |
65 |
|
|
113 |
|
Deferred income taxes |
(86 |
) |
|
(19 |
) |
Provision for losses on accounts receivable and inventory |
42 |
|
|
44 |
|
Loss on extinguishment of debt |
103 |
|
|
275 |
|
Goodwill impairment |
45 |
|
|
— |
|
Loss on business held for sale |
55 |
|
|
— |
|
Other non-cash items, net |
104 |
|
|
(2 |
) |
Changes in operating assets and liabilities, net of the effects of
acquisitions: |
|
|
|
Deferred subscriber acquisition costs |
(148 |
) |
|
(136 |
) |
Deferred subscriber acquisition revenue |
202 |
|
|
193 |
|
Other, net |
(54 |
) |
|
(36 |
) |
Net cash provided by operating activities |
1,459 |
|
|
1,406 |
|
Cash flows from investing
activities: |
|
|
|
Dealer generated customer
accounts and bulk account purchases |
(514 |
) |
|
(527 |
) |
Subscriber system assets |
(431 |
) |
|
(428 |
) |
Capital expenditures |
(120 |
) |
|
(94 |
) |
Acquisition of businesses, net of
cash acquired |
(95 |
) |
|
(48 |
) |
Other investing, net |
4 |
|
|
14 |
|
Net cash used in investing activities |
(1,157 |
) |
|
(1,084 |
) |
Cash flows from financing
activities: |
|
|
|
Proceeds from initial public
offering, net of related fees |
— |
|
|
1,406 |
|
Proceeds from long-term
borrowings |
3,378 |
|
|
— |
|
Repayment of long-term
borrowings, including call premiums |
(3,650 |
) |
|
(686 |
) |
Repayment of mandatorily
redeemable preferred securities, including redemption premium |
— |
|
|
(853 |
) |
Dividends on common stock |
(34 |
) |
|
(53 |
) |
Repurchases of common stock |
(150 |
) |
|
— |
|
Deferred financing costs |
(53 |
) |
|
— |
|
Other financing, net |
(1 |
) |
|
(1 |
) |
Net cash used in financing activities |
(510 |
) |
|
(187 |
) |
|
|
|
|
Effect of currency translation on
cash |
1 |
|
|
— |
|
|
|
|
|
Net (decrease) increase
in cash and cash equivalents and restricted cash and cash
equivalents |
(207 |
) |
|
134 |
|
Cash and cash equivalents
and restricted cash and cash equivalents at beginning of
period |
367 |
|
|
127 |
|
Cash and cash equivalents
and restricted cash and cash equivalents at end of
period |
$ |
161 |
|
|
$ |
261 |
|
Note: amounts may not add due to rounding
ADT INC. AND
SUBSIDIARIESU.S. GAAP to Non-GAAP
RECONCILIATIONS(Unaudited)
Adjusted EBITDA
|
For the Three Months Ended |
|
For the Nine Months Ended |
(in millions) |
September 30,2019 |
|
September 30,2018 |
|
September 30,2019 |
|
September 30,2018 |
Net loss |
$ |
(182 |
) |
|
$ |
(236 |
) |
|
$ |
(352 |
) |
|
$ |
(460 |
) |
Interest expense, net |
152 |
|
|
152 |
|
|
466 |
|
|
501 |
|
Income tax benefit |
(36 |
) |
|
(8 |
) |
|
(82 |
) |
|
(20 |
) |
Depreciation and intangible
asset amortization |
506 |
|
|
475 |
|
|
1,503 |
|
|
1,447 |
|
Amortization of deferred
subscriber acquisition costs |
21 |
|
|
16 |
|
|
59 |
|
|
43 |
|
Amortization of deferred
subscriber acquisition revenue |
(28 |
) |
|
(21 |
) |
|
(79 |
) |
|
(56 |
) |
Share-based compensation
expense |
19 |
|
|
18 |
|
|
65 |
|
|
113 |
|
Merger, restructuring,
integration and other |
10 |
|
|
(7 |
) |
|
23 |
|
|
2 |
|
Goodwill impairment |
45 |
|
|
— |
|
|
45 |
|
|
— |
|
Loss on business held for
sale |
55 |
|
|
— |
|
|
55 |
|
|
— |
|
Loss on extinguishment of
debt |
15 |
|
|
213 |
|
|
103 |
|
|
275 |
|
Radio conversion costs,
nets(1) |
12 |
|
|
2 |
|
|
13 |
|
|
5 |
|
Financing and consent
fees(2) |
22 |
|
|
— |
|
|
23 |
|
|
— |
|
Foreign currency
losses/(gains)(3) |
— |
|
|
(1 |
) |
|
(1 |
) |
|
1 |
|
Acquisition related
adjustments(4) |
4 |
|
|
3 |
|
|
17 |
|
|
11 |
|
Licensing fees(5) |
— |
|
|
— |
|
|
— |
|
|
(22 |
) |
Other(6) |
9 |
|
|
2 |
|
|
17 |
|
|
— |
|
Adjusted EBITDA |
$ |
624 |
|
|
$ |
610 |
|
|
$ |
1,876 |
|
|
$ |
1,840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss to total revenue
ratio |
(14.0 |
) |
% |
|
|
(20.5 |
) |
% |
|
|
(9.2 |
) |
% |
|
|
(13.5 |
) |
% |
|
Adjusted EBITDA Margin
(as percentage of M&S Revenue) |
57.1 |
|
% |
|
|
59.2 |
|
% |
|
|
57.7 |
|
% |
|
|
59.9 |
|
% |
|
Note: amounts may not add due to
rounding_______________________(1) Represents costs associated with
upgrading cellular technology used in many of our security systems,
offset by any incremental revenue earned.(2) Represents fees
incurred associated with the issuance, restatement, and amendment
of debt.(3) Represents the conversion of intercompany loans that
are denominated in Canadian dollars to U.S. dollars.(4) Represents
amortization of purchase accounting adjustments and compensation
arrangements related to acquisitions. (5) The nine months
ended September 30, 2018 include other income related to
approximately $22 million of one-time licensing fees.(6) Represents
certain advisory and other costs associated with our transition to
a public company as well as other charges and non-cash items. The
three and nine months ended September 30, 2019 include an estimated
legal settlement, net of insurance, of $6 million. The nine months
ended September 30, 2018 include a gain of $7.5 million from
the sale of equity in a third party that we received as part of a
settlement.
Free Cash Flow Before Special Items
|
For the Three Months Ended |
|
For the Nine Months Ended |
(in millions) |
September 30,2019 |
|
September 30,2018 |
|
September 30,2019 |
|
September 30,2018 |
Net cash provided by operating activities |
$ |
480 |
|
|
$ |
443 |
|
|
$ |
1,459 |
|
|
$ |
1,406 |
|
Net cash used in investing
activities |
(369 |
) |
|
(388 |
) |
|
(1,157 |
) |
|
(1,084 |
) |
Net cash provided by (used in)
financing activities |
6 |
|
|
(893 |
) |
|
(510 |
) |
|
(187 |
) |
|
|
|
|
|
|
|
|
Net cash provided by
operating activities |
$ |
480 |
|
|
$ |
443 |
|
|
$ |
1,459 |
|
|
$ |
1,406 |
|
Dealer generated customer
accounts and bulk account purchases |
(181 |
) |
|
(199 |
) |
|
(514 |
) |
|
(527 |
) |
Subscriber system assets |
(137 |
) |
|
(148 |
) |
|
(431 |
) |
|
(428 |
) |
Capital expenditures |
(36 |
) |
|
(29 |
) |
|
(120 |
) |
|
(94 |
) |
Free Cash Flow |
127 |
|
|
68 |
|
|
394 |
|
|
357 |
|
Financing and consent
fees |
18 |
|
|
— |
|
|
19 |
|
|
— |
|
Restructuring and integration
payments |
1 |
|
|
4 |
|
|
10 |
|
|
15 |
|
Integration related capital
expenditures |
6 |
|
|
1 |
|
|
7 |
|
|
6 |
|
Radio conversion costs,
net |
10 |
|
|
2 |
|
|
13 |
|
|
5 |
|
Redemption of mandatorily
redeemable preferred securities(9) |
— |
|
|
96 |
|
|
— |
|
|
96 |
|
Other |
5 |
|
|
(1 |
) |
|
15 |
|
|
— |
|
Free Cash Flow before special items |
$ |
167 |
|
|
$ |
169 |
|
|
$ |
459 |
|
|
$ |
479 |
|
Note: amounts may not add due to rounding
Net Loss Before Special Items
|
For the Three Months Ended |
|
For the Nine Months Ended |
(in millions) |
September 30,2019 |
|
September 30,2018 |
|
September 30,2019 |
|
September 30,2018 |
Net loss |
$ |
(182 |
) |
|
$ |
(236 |
) |
|
$ |
(352 |
) |
|
$ |
(460 |
) |
Merger, restructuring,
integration, and other |
10 |
|
|
(7 |
) |
|
23 |
|
|
2 |
|
Financing and consent
fees(1) |
22 |
|
|
— |
|
|
23 |
|
|
— |
|
Foreign currency
losses/(gains)(2) |
— |
|
|
(1 |
) |
|
(1 |
) |
|
1 |
|
Loss on extinguishment of
debt |
15 |
|
|
213 |
|
|
103 |
|
|
275 |
|
Radio conversion costs,
net(3) |
12 |
|
|
2 |
|
|
13 |
|
|
5 |
|
Share-based compensation
expense |
19 |
|
|
18 |
|
|
65 |
|
|
113 |
|
Interest rate swaps,
net(4) |
1 |
|
|
(1 |
) |
|
9 |
|
|
(9 |
) |
Acquisition related
adjustments(5) |
4 |
|
|
3 |
|
|
17 |
|
|
11 |
|
Licensing fees(6) |
— |
|
|
— |
|
|
— |
|
|
(22 |
) |
Other(7) |
9 |
|
|
2 |
|
|
17 |
|
|
— |
|
Goodwill impairment |
45 |
|
|
— |
|
|
45 |
|
|
— |
|
Loss on business held for
sale |
55 |
|
|
— |
|
|
55 |
|
|
— |
|
Tax adjustments(8) |
(22 |
) |
|
(7 |
) |
|
(60 |
) |
|
(5 |
) |
Net loss before
special items |
$ |
(11 |
) |
|
$ |
(13 |
) |
|
$ |
(42 |
) |
|
$ |
(88 |
) |
Note: amounts may not add due to
rounding_______________________(1) Represents fees incurred
associated with the issuance, restatement, and amendment of
debt.(2) Represents the conversion of intercompany loans that are
denominated in Canadian dollars to U.S. dollars.(3) Represents
costs associated with upgrading cellular technology used in many of
our security systems, offset by any incremental revenue earned.(4)
Primarily represents the change in the fair value of interest rate
swaps not designated as hedges. (5) Represents amortization of
purchase accounting adjustments and compensation arrangements
related to acquisitions. (6) The nine months ended
September 30, 2018 include other income related to
approximately $22 million of one-time licensing fees.(7) Represents
certain advisory and other costs associated with our transition to
a public company as well as other charges and non-cash items. The
three and nine months ended September 30, 2019 include an estimated
legal settlement, net of insurance, of $6 million. The nine months
ended September 30, 2018 include a gain of $7.5 million from
the sale of equity in a third party that we received as part of a
settlement.(8) Represents tax impact on special items. In 2018,
includes a one-time non-deductible tax impact on share-based
compensation expense related to the Class B Units in Ultimate
Parent.(9) On July 2, 2018, the Company redeemed mandatorily
redeemable preferred securities in full, which included the payment
of accumulated dividend obligation of $96 million ($51 million
related to 2018 and $45 million related to 2017), which is excluded
from Free Cash Flow before special items.
Diluted EPS Before Special Items
|
For the Three Months Ended |
|
For the Nine Months Ended |
(in millions, except per share
data) |
September 30,2019 |
|
September 30,2018 |
|
September 30,2019 |
|
September 30,2018 |
Diluted EPS (GAAP) |
$ |
(0.25 |
) |
|
$ |
(0.31 |
) |
|
$ |
(0.47 |
) |
|
$ |
(0.62 |
) |
Impact of special items |
0.26 |
|
|
0.30 |
|
|
0.49 |
|
|
0.51 |
|
Impact of tax adjustments |
(0.03 |
) |
|
(0.01 |
) |
|
(0.08 |
) |
|
(0.01 |
) |
Diluted EPS before
special items |
$ |
(0.02 |
) |
|
$ |
(0.02 |
) |
|
$ |
(0.06 |
) |
|
$ |
(0.12 |
) |
|
|
|
|
|
|
|
|
Basic and diluted
weighted-average number of shares outstanding |
740 |
|
|
755 |
|
|
749 |
|
|
745 |
|
Note: amounts may not add due to rounding
Commercial Organic Revenue, Commercial Inorganic
Revenue, and Commercial Organic Revenue Growth
|
For the Three Months Ended |
(in millions) |
September 30,2019 |
|
September 30,2018 |
Total revenue |
1,301 |
|
1,148 |
Revenue
growth |
13 % |
|
|
|
|
|
|
Commercial revenue(1) |
272 |
|
149 |
Commercial revenue
growth |
82 % |
|
|
|
|
|
|
Commercial inorganic
revenue(2) |
98 |
|
|
Commercial organic
revenue |
174 |
|
149 |
Commercial organic
revenue growth |
17 % |
|
|
_______________________(1) Represents total
revenue associated with commercial and national accounts.(2)
Represents incremental total revenue associated with commercial and
national accounts from acquisitions until there is a full
twelve-month overlap from the date of acquisition.
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