ADT 10-K & 10-Q changes, risk factors and insider trading

Our ability to develop, alone or with third parties, or to acquire new products and services that are technologically innovative requires the investment of significant resources and can affect our competitive position.position or financial condition. In addition, the dynamic nature of these changes requires that we simultaneously engage in significant technologytechnological developmentaldevelopment efforts across our operations, including platform development, sales, marketing, customer care, customer self-service, remote assistance, billing, and other substantive and administrative functions. Upgrading and implementing changes to any one of our systems presents challenges, including potential interruptions to system operations as changes are made, which could disrupt or reduce their efficiency in the short term and temporarily affect the quality or availability of the products and services offered to customers. Moreover, the age of our systems and architecture may present unique challenges that we have not previously encountered as we undertake these developmental efforts simultaneously across our operations. These system updates and development efforts divert resources from other potential investments in our businesses, and they may not lead to the development of new commercially successful technologies, products, or services on a timely basis.

From time to time, we enter into strategic partnerships with third parties to broaden and develop our offerings and marketing efforts. These strategic partnerships may require us to undertake significant commitments and make substantial expenditures and there can be no assurance that the expected benefits from these partnerships will be realized. For example, in July 2020, we entered into the Google Commercial Agreement, pursuant to which Google agreed to supply us with certain Google Devices and Services for sale to our customers. We have agreed,agreed until November 2030, with certain exceptions,exceptions and subject to customary termination rights related to breach and change of control, to exclusively provide or sell those Google Devices and Services to our DIFM customers, although Google can sell the same or similar devices to our competitors who may more successfully commercialize products or services that arecompete competitive towith ours, thereby materially harming our business. Given this exclusivity arrangement with Google, if Google fails to perform or to provide Google Devices and Services that continually meet the demands of our DIFM customers, or fails to provide continued innovationinnovation, management, and investment in their relevant product businesses, or if we fail to provide or sell the Google Devices and Services that Google provides, or if we fail to develop products and services with Google that our customers find desirable, all in a timely manner, or if Google were to begin offering security products or services competitivethat tocompete ourwith own,ours, our business, financial condition, results of operations, and cash flows could be materially, adversely impacted. In addition, subject to customary termination rights related to breach and change of control, the Google Commercial Agreement has an initial term of seven years from the date that the Google Devices and Services are successfully integrated into our end-user security and automation platform. Product introductions and the timing of such integration are focused on customer experience and are mutually agreed upon. Until the launch of such integration, Google has the contractual right to require us, with certain exceptions, to exclusively offer those Google Devices and Services without such integration for all new professional installations and for existing customers who do not otherwise have ADT Pulse or ADT Control interactive services.

InWe November 2020, we announced the ongoing development oflaunched our proprietary ADT-owned next-generation professional security and automation technology platform that we launched in 2023 as ADT+. Our ADT+ platform is intended to provide customers with a seamless experience across security, life safety, automation, and analytics through a common application that integrates the user experience, the customer service experience, and back-end support. WeOur systems, including the ADT+ platform, may contain defects, bugs, security vulnerabilities, performance degradation, or integration issues (including with third-party devices, operating systems, and cloud services) that could cause service interruptions, impaired functionality, or a negative customer experience, and we may not achieve a successful ongoingcontinued rollout of the ADT+ platform, and new platform features, in a timely manner, within budget, or in a manner that enables the commercialization of products and services that meet the continually evolving demands of our customers, any of which could have a material adverse effect on our business, financial condition, results of operations, and cash flows. Additionally, our DIY offerings rely heavily on digital customer journeys and our ability to deliver a consistent and reliable end-to-end experience through our platforms, mobile applications, and distribution and fulfillment capabilities. Any delays, defects, outages, or implementation challenges across these systems could negatively affect customer adoption and retention. As we continue to commercialize products based upon our interactive platform, we have adjusted processes for reviewing and securing intellectual property rights. Nevertheless, we have been, and in the future may become, the target of additional lawsuits alleging that we have infringed the patents or technology of third parties. Regardless of the merits of these lawsuits and any steps we take to mitigate infringement risk, any allegations could cause us to incur significant costs to defend and resolve, and could harm our business and reputation, any of which could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

Any new or enhanced products and services that we develop alone or pursuant to existing or new agreements with third parties may not satisfy customer preferences,preferences or our expectations, and potential product failures may cause customers to reject our products and services. As a result, these products and services may not achieve market acceptance, and our brand image could suffer. In addition, our competitors may introduce superior products or business strategies, impairing our brand and the desirability of our products and services, which may cause customers to defer or forego purchases of our products and services, or to decline to enter into new monthly installment contracts or to cancel or fail to renew existing contracts. If our competitors implement new technologies before we can implement them, those competitors may be able to provide more effective products than ours, possibly at lower prices, and experience higher adoption rates and popularity. Any delay or failure in the introduction of new or enhanced solutions could harm our business, financial condition, results of operations, and cash flows. In addition, the markets for our products and services may not develop or grow as we anticipate, and any changes in our go-to-market approach may not be seen as favorable by customers. The failure of our technology, products, or services to gain market acceptance, the potential for product defects, or the obsolescence of our products and services could significantly reduce our revenue, increase our operating costs, or otherwise materially adversely affect our business, financial condition, results of operations, and cash flows. Further, our ability to realize the anticipated benefits of certain technology initiatives may depend on the successful completion and integration of potential acquisitions, which are subject to uncertainty and risk.

The home security and automation markets in which we sell our products and services are highly competitive, and many companies, including large technology companies and other service providers have significant resources and established customer bases, which may result in pressure on our profit margins and limit our ability to maintain or increase the market share of our products and services.

We experience significant competitive pressure in both the DIFM and DIY spaces. The monitored security industry is highly fragmented and subject to significant competition and pricing pressures. We experience significant competitive pricing pressures in the DIFM space on installation, monitoring, and service fees. Several competitors offer comparable or lower installation and monitoring fees, and others may charge significantly more for installation, but in many cases, less for monitoring. We also face competition in the DIY space from companies such as SimpliSafe, Wyze Home Monitoring, and Amazon Ring, which enable customers to self-monitor and control their environments without third-party involvement through the Internet, text messages, emails, or similar communications. Our strategic expansion into traditional retail and e-commerce (“e-tail”) channels to grow our DIY market share introduces significant execution and margin risks. Entry into these high-volume consumer channels requires us to compete directly with established global consumer electronics brands that may have greater scale or lower cost structures. This shift may result in lower unit margins compared to our traditional professional installation model. Some DIY providers may also offer professional monitoring with the purchase of their systems and equipment without a contractual commitment, or offer new Internet of Things (“IoT”) devices and services with automated features and capabilities, which may be appealing to customers and put us at a competitive disadvantage. In addition, certain DIY providers have a significantly broader customer base and product offering than us, allowing them to cross-subsidize their offerings through their other product offerings and cross-sell interactive and security solutions that are competitive with our offerings to customers who are loyal to the competitor’s brand. Continuing expansion in customers’ options to choose systems that they can in part or fully install could increase our attrition rates over time and the risk of accelerated amortization of customer contracts resulting from a declining customer base.

In addition, cable, telecommunications, and large technology companies have expanded into the home automation and monitored security industry and are bundling their existing offerings with interactive and monitored security services, often at lower monthly monitoring rates. These companies: (i) may have existing access to and relationships with customers, as well as highly recognized brands, which may drive increased awareness of their security/automation offerings relative to ours; (ii) may have access to greater capital and resources than us; and (iii) may spend significantly more on technology development, advertising, marketing, and promotional resources, as well as the acquisition of other companies with home automation solution offerings, any of which could have a material adverse effect on our ability to drive awareness and demand for our products and services. We may also face competition for direct sales from our independent, third-party authorized dealers, who may offer installation in particular markets for considerably less than we do.

Additionally, one or more of our competitors either in the DIFM or DIY space could develop a significant technological advantage over us, allowing them to provide additional or better-quality service or lower prices, which could put us at a competitive disadvantage. Continued pricing pressure, technology developments or improvements, including the use of artificial intelligence, competitor brand loyalty, and continuing shifts in customer preferences toward self-monitoring and DIY could adversely impact our customer base, revenue, and/or pricing structure and have a material adverse effect on our business, financial condition, results of operations, and cash flows. Aggressive pricing strategies adopted by our competitors could cause us to lose market share, reduce our prices, and add significant pressure on our cost structure.

If these incentives are reduced or eliminated, new homeowners who otherwise might not feel the need for monitored security services would have to be acquired through our standard sales and marketing processes, which could be at a higher cost of acquisition, and existing customers may choose to disconnect or not renew their service contracts, which could increase our attrition rates. In addition, as a result of our strategic relationship with State Farm, other insurance companies may offer rate reduction policies that favor our competitors’ customers or may otherwise modify their practices in detriment of our customers. In each case, our growth prospects and our business, financial condition, results of operations, and cash flows could be materially adversely affected.

The retirement of older telecommunicationstechnologies, technologydevelopment byof telecommunicationsnew providerstechnologies incompatible with our existing offerings, and limitations on our customers’ options of telecommunications and broadband services and equipment could materially adversely affect our business, increase customer attrition, and require significant capital expenditures.

Certain elements of our operating model have historically relied on our customers’ continued selection and use of traditional copper wireline telecommunications service to transmit alarm signals to our monitoring centers. There is a growing trend for customers to switch to the exclusive use of cellular or IP-based technology in their homes and businesses, as telecommunication providers discontinue their copper wireline services in favor of IP-based technology. ManySome of our customers’ security systems rely on technology that is not operable with newer cellular or IP-based networks, and as such, will not transmit alarm signals on these networks. The discontinuation of copper landline services, older cellular technologies, and other services by telecommunications providers, as well as the switch by customers to the exclusive use of cellular or IP-based technology, may require system upgrades to alternative, and potentially more expensive, alarm systems to function and transmit alarm signals properly, which could increase our customer revenue attrition. Additionally, any telecommunications technology upgrades or implementations could also result in significant additional costs and divert management and other resource attention away from customer service and sales efforts for new customers. In the future, we may not be able to successfully implement new telecommunications technologies or adapt existing telecommunications technologies to changing market demands. If we are unable to adapt in a timely manner to changing telecommunications technologies, market conditions or customer preferences, our business, financial condition, results of operations, and cash flows could be materially adversely affected.

InFor Februaryexample, 2022,between a2022 and 2023, major provider ofU.S. 3G cellular networks beganwere retired, resulting in a loss of signal to retirelegacy itssystems networkthat andrelied aon major3G provider of Code-Division Multiple Access (“CDMA”) began to do so in December 2022.communications. Of our customers impacted by these retirements, we transitioned, or provided our customers with the means to transition, all but a relatively small number of customer accounts. None of these remaining customers have responded to our multiple requests to upgrade their systems and therefore we could not transition them prior to the relevant transition dates. A failure to effectively transition these remaining customers away from retired networks will result in a loss of signal to the systems and certain services we provide, which may impact our ability to bill and collect for services provided. Implementation of additional service charges in connection with these transitions may cause customers to view such charges unfavorably, which could increase our customer attrition.

In addition, we use broadband Internet access service to support our product offerings, such as video monitoring and surveillance, and as a communications option for alarm monitoring and other services. Broadband connectivity is also a current requirement for our proprietary Wi-Fi sensing and ambient intelligence capabilities acquired through Origin AI. While these features are not yet commercially deployed to our ADT+ platform, our ability to successfully enable and maintain future ambient sensing functionalities, including human presence detection and activity classification, may depend on the continued availability of high-speed, reliable broadband service. Video monitoring and surveillance servicesservices, and Wi-Fi sensing, use significantlyand morerequire bandwidthsignificant than non-video Internet activity.bandwidth. As utilizationuse rates and penetration of these services increase, the need for increased network capacity may necessitate incurringadditional steps or costs (such as upgrading broadband equipment or service tiers) for our customers, or additional capital or operational expenditures for us, to avoid service disruptions and enable a seamless video experience for our customers.customers and avoid service disruptions. Further, if our customers decidecontinue to transition from traditional broadband Internet access services to fixed mobile Internet access services, they may encounter data limits which could negatively impact their use of video monitoring and surveillance, or future Wi-Fi sensing services, any of which could materially adversely impact our business, financial condition, results of operations, and cash flows.

Our business depends on our reputation and ability to maintain good relationships with our customers, dealers, suppliers, and local regulators, among others. Our reputation may be harmed either through product defects, such as the failure of one or more of our customers’ alarm systems, or shortfalls in customer service. Customers generally judge our performance through their interactions with staff at our monitoring and customer care centers, dealers, and field installation and service technicians, as well as their day-to-day interactions with our products and mobile applications. These interactions may also generate reviews and social media posts, including negative ones, that draw additional attention to our customer service. Any failure to meet customers’ expectations in such customer service areas could harm our reputation or customer relationships and cause an increase in attrition rates or make it difficult to obtain new customers or otherwise have a material adverse effect on our business, financial condition, results of operations, and cash flows.

In addition, we have attempted to control the operating costs of certain of our customer care operations using lower cost labor in certain foreign countries that may be subject to relatively higher degrees of political and social instability and may lack the infrastructure to withstand political unrest or natural disasters. The occurrence of natural disasters, pandemics, political or economic instability, or other activities in such countries has resulted in and, in the future could result inin, the sudden and continued closure of operations that in turn have caused and, in the future could causecause, disruptions in our operations and a failure to maintain our existing level and quality of customer care. The practice of utilizing labor based in foreign countries has come under increased scrutiny in the United States. Governmental authorities could seek to limit or penalize our operations, and our customers may not value the services provided by such operations. In addition, we are subject to applicable anti-corruption laws and regulations, such as The Foreign Corrupt Practices Act, that prohibit certain types of payments and which could expose us to significant penalties, fines, settlements, costs and consent orders that may curtail or restrict our business. Any such outcome could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

Our brand names are critical to our success. Unauthorized use of our brand names by third parties may materially adversely affect our business and reputation, including the perceived quality and reliability of our products and services, as well as brand loyalty. We rely on trademark law, company brand name protection policies, and agreements with our employees, customers, business partners, and others to protect the value of our brand names. Despite our precautions, we cannot provide assurance that those procedures are sufficient to protect against unauthorized third-party use of our brand names. In recent years, variousVarious third parties have usedused, and may continue to use, our brand names to engage in fraudulent activities, including unauthorized telemarketing conducted in our names to induce our existing customers to switch to competing monitoring service providers, lead generation activities for competitors, and obtaining personally identifiable or personal financial information. Third parties sometimes use our names and trademarks, or other confusingly similar variations thereof, in other unauthorized contexts that may impact our brands. We may not be successful in detecting, investigating, preventing, or prosecuting all unauthorized third-party use of our brand names. Future litigation with respect to such unauthorized use could also result in substantial costs and diversion of our resources. These factors could materially adversely affect our reputation, business, financial condition, results of operations, and cash flows.

Third parties hold rights to certain of our key brand names outside of the U.S.,names, which could prevent us from being able to adequately protect our brands or expand into other markets.

Our success depends in part on our continued ability to use trademarks to capitalize on our brands’ name-recognitionname recognition and to further develop our brands in the U.S,U.S., as well as in other international markets should we choose to expand and grow our business outside of the U.S. in the future. Not all the trademarks that are used by our brands have been registered in all of the countries in which we may do business in the future, and some trademarks may never be registered in any or all of these countries. Rights in trademarks are generally territorial in nature and are obtained on a country-by-country basis by the first person to obtain protection through use or registration in that country in connection with specified products and services. Some countries’ laws do not protect unregistered trademarks at all or make them more difficult to enforce; and third parties may have filed for “ADT” or marks similar to our blue octagon logo in countries where we have not registered these brands as trademarks. Accordingly, we may not be able to adequately protect our brands everywhere in the world and use of such brands may result in liability for trademark infringement, trademark dilution, or unfair competition.

For example, certain trademarks associated with the ADT brand, including “ADT” and the blue octagon, are owned in all territories outside of the U.S. and Canada by Johnson Controls, which acquired and merged with and into Tyco. In certain instances, such trademarks are licensed in certain territories outside the U.S. and Canada by Johnson Controls to third parties. Pursuant to a trademark agreement entered into between The ADT Corporation and Tyco (the “Tyco Trademark Agreement”) in connection with the separation of The ADT Corporation from Tyco in 2012, which endures in perpetuity, we are prohibited from ever registering, attempting to register or using such trademarks outside the U.S. (including Puerto Rico and the U.S. Virgin Islands) and Canada, and we may not challenge Tyco’s rights in such trademarks outside the U.S. and Canada. Additionally, under the Tyco Trademark Agreement, we and Tyco each hashave the right to propose new secondary source indicators (e.g., “Pulse”) to become designated source indicators of such party. To qualify as a designated source indicator, certain specified criteria must be met, including that the indicator has not been used as a material indicator by the non-proposing party or its affiliates over the previous seven years. If we are unable to object to Tyco’s proposal for a new designated source indicator by successfully asserting that the new indicator did not meet the requisite criteria, we would subsequently be precluded from using, registering, or attempting to register such indicator in any jurisdiction, including the U.S. and Canada, whether alone or in connection with an ADT brand. Any dilution, infringement, or customer confusion with respect to our brand or use of trade names, or the inability to use such names as we expand our existing and create new strategic relationships, could materially adversely affect our reputation, business, financial condition, results of operations, and cash flows.

In addition, in November 2019, we sold all our shares of ADT Canada to TELUS and, among other things, entered into a non-competition and non-solicitation agreement with TELUS pursuant to which we agreed not to directly or indirectly engage in a business competitive with ADT Canada, subject to limited exceptions, for a period of seven years. In connection with our sale of ADT Canada, we also entered into a patent and trademark license agreement with TELUS granting them (i) the use of our patents in Canada for a period of seven years and (ii) the exclusive rights to use our trademarks in Canada for a period of five years followed by non-exclusive use of our trademarks for an additional two years. Any violation by TELUS of our agreements with them, or their misuse of our intellectual property or behavior by TELUS in a manner that incorrectly reflects poorly on us because of TELUS’s use of our intellectual property could damage our brand and reputation and have a material adverse effect on our business, financial condition, results of operations, and cash flows.

We rely on a significant number of our customers remaining with us as customers for long periods of time, and if our attrition rates rise significantly, our profitability, businessbusiness, financial condition, results of operations, and cash flows could be materially adversely affected.

New customers require an upfront investment, and we generally achieve revenue break-even in less than two and a half years. Accordingly, our long-term profitability is dependent on long customer tenure. This requires that we minimize our rate of customer disconnects, or attrition, which can increase as a result of factors such as customer relocations, problems with our product or service quality, customer service challenges, increased interoperability of smart home devices now or in the future, customer non-pay,non-payment, unfavorable general economic conditions, and the preference for lower pricing of competitors’ products and services over ours. If attrition rates were to rise significantly, we may be required to accelerate the depreciation and amortization expense for, or to impair, certain of our assets, including with respect to subscriber and customer relationships, which would cause a material adverse effect on our financial condition and results of operations. In addition, if we fail to keep our customers for a sufficient period of time, or our attrition rates increase, our profitability, business, financial condition, results of operations, and cash flows could be materially adversely affected.

We are dependent on the capacity, reliability, and security of information technology networks and systems, including Internet and Internet-based or “cloud” computing services and the relevant personnel who operate those systems, to collect, process, transmit, and store electronic information. We have completed a significant number of acquisitions of companies that operate different technology platforms and systems. We routinely implement modifications and upgrades to our existing information technology systems to keep up with changing technology and business demands. Aiming to provide a seamless customer experience, we are also integrating systems from our various bulk account acquisitions, making changes to legacy systems, replacing legacy systems with successor systems with new functionality, and implementing new systems. We are also implementing modifications to various technology platforms and systems related to the Commercial Divestiture, including as part of the transition services related to the Commercial Divestiture.

As we increase our reliance on cloud infrastructure, our products and services will become increasingly reliant on continued access to, and the continued stability, reliability, and flexibility of third-party cloud services. We have limited control over third-party cloud operations and facilities onthat which we plan tocurrently host our technology infrastructure.infrastructure and will likely have limited control over those that we may use in the future. Any changes in third-party service levels or any disruptions or delays from errors, defects, cyber attacks, security breaches, computer viruses, DDoS attacks, bad acts, performance problems, or performanceother problemsdisruptions resulting from our increased reliance on cloud infrastructure could harm our reputation, damage our small business customers’ businesses, and harm our business. Our third-party cloud providers are also vulnerable to damage or interruption from earthquakes, hurricanes, floods, fires, war, public health crises, terrorist attacks, power losses, hardware failures, systems failures, telecommunications failures and similar events. Our transition and migration to the cloud may increase our risk of liability and cause us to incur significant technical, legal or other costs, and we may have limited remedies against third-party providers in connection with such liabilities.

Despite our security measures, we and third parties whose systems are interconnected with ours have been the target of and/or subject to a number of these methods of cyber attacks, including the Cybersecurity Incidents, and we will likely continue to be the target of and/or subject to such attacks in the future. These cyber attacks have previously resulted, and may in the future result, in certain impacts to us or interconnected third-parties, including disrupted operations, system instability, theft of our confidential or proprietary or other information, increased cybersecurity protection, consulting and legal costs, litigation, and reputational damage. These cyber attacks have previously exposed, and may in the future expose, us to an increased risk of future cyber attacks and threats, including through an increase in more sophisticated and targeted cyber attacks from various methods, including phishing, malware, and ransomware, among other methods. In addition, cyber attacks could result in misstated or misappropriated financial data or impair our ability to effectively manage our financial reporting process. We may be subject to regulatory scrutiny or exposed to litigation or other claims by affected persons including our customers, employees, and business partners. While we maintain insurance coverage that is intended to address certain aspects of data security risks, such insurance coverage may not be sufficient to cover all losses or all types of claims that have arisen or may arise, and in the future may not be available at reasonable costs or at all.

In addition, following the Commercial Divestiture, certain of our information systems and our information security protocols remainremained interdependent on those of our divested Commercial Business, including dependence for a transitional period on its information systems for billing and alarm monitoring for a small portion of our clients’ accounts.accounts, which exposed us to increased risks related to cyber attacks. Moreover, certain employees of our former Commercial Business have had and will have access to our financial and other internal systems for a period of time which has exposed and will continue to expose us to increased risks related to information theft and unauthorized system access. For more information on the continuing services relationship between ADT and our former Commercial Business, see “WeADT mayis nota achieveless somediversified orbusiness all of the strategic and financial benefits that we expect to achieve fromfollowing the Commercial Divestiture orDivestiture, the ADT Solar ExitExit, and the sale of our multifamily business, which couldmay haveadversely aaffect material adverse effect on our financial condition andADT’s results of operations.operations and financial condition.”

This interconnection with our former Commercial Business was exploited by an unauthorized actorhas in the Octoberpast Incident and exposesexposed us to increased risks related to cyber attacks. Cyber attacks and threats at our former Commercial Business have in the past led, and may in the future lead, to cyber attacks and threats to our systems and assets. Any measures we have taken or may take in the future to protect against cyber attacks and threats, including those at our former Commercial Business, or against employees, including employees of our former Commercial Business, who may wrongfully or negligently use or access such technology, intellectual property, or information, or negligently or wrongfully disclose such technology and intellectual, confidential, proprietary, or any other information to third parties, including our competitors, may prove insufficient and cannot provide absolute protection against such attacks and threats.

Our business also requires us to share confidential information with suppliers and other third parties. Third parties, including our partners and vendors, could also be a source of cybersecurity risk to us, or cause disruptions to our normal operations, in the event of a failure of their own products, components, networks, security systems, and infrastructure. For example, in 2021, one of our vendors, the Ultimate Kronos Group (“Kronos”), which is a workforce management and human capital management cloud provider, experienced a ransomware attack that resulted in Kronos temporarily decommissioning the functionality of certain of its cloud software, requiring us to find alternative methods to properly pay our employees and to monitor the status of the work in progress of certain of our projects in a timely manner. In addition, some of the products we sell and provide services for are categorized as IoT and may become targets for cybercriminals and other actors, including for actors attempting to gain unauthorized access. The significant increase in the number of our employees working from home further exposes us to security risks. Although we take steps to secure confidential, proprietary, or other information that is provided to or accessible by third parties working on our behalf, we cannot be certain that advances in criminal capabilities,capabilities (including the use of artificial intelligence), new discoveries in the field of cryptography, or other developments will not compromise or breach the technology protecting the networks that access our products and services.services or third-party networks or systems that host or store our data.

Uncertainty in the development, deployment, and use of AIAI, including generative AI, in our products and services,services asand well asacross our business more broadly,operations could adversely affect our businessbusiness, financial condition, results of operations, and reputation.

The legal and regulatory landscape surrounding AI is rapidly evolving and uncertain including in the areas of intellectual property, cybersecurity, privacy, and data protection. For example, there is uncertainty around the validity and enforceability of intellectual property rights related to our use or development of AI tools. Compliance with new or changing laws, regulations or industry standards related to AI may impose significant operational costs and may limit our ability to apply AI technologies in certain use cases. Failure to appropriately respond to this evolving landscape may result in legal liability, regulatory scrutiny or action, or brand and reputational harm.

Certain key suppliers may experience difficulties in obtaining necessary components, which may impact our ability to meet customer demands and complete critical initiatives. For instance, we are currently monitoring and responding to the global memory chip shortage, which may increase our equipment costs and could lead to future fulfillment delays or the requirement to re-engineer hardware components on short notice to accommodate available alternative parts. In addition, our suppliers are susceptible to disruptions from fire, natural disasters, weather-related incidents, and the effects of climate change (such as sea level rise, drought, flooding, wildfires, and increased storm severity), as well as health epidemics and pandemics, transmission interruptions, extended power outages, human or other error, information systems and network-related events, such as technology failures, malicious acts, including cyber attacks, terrorism, war, sabotage, and government actions, or other concerns impacting their local workforce or operations, all of which are beyond our and their control. While we actively monitor supplier operations, require compliance with business continuity and disaster recovery plans, maintain alternative sourcing options where feasible, carry a surplus of finished goods in inventory, exercise limited control over our raw material suppliers through demand forecasting and supply planning processes, and have contract terms that require transparency in sourcing, quality assurance commitments, and escalation protocols, there is no assurance that these practices will be effective and supplier disruptions, including any financial or other difficulties our providers may face, may have a material adverse effect on our business.

We are also subject to supply chain disruptions if we learn that any of our suppliers are in violation of legislation which bans the import of goods based on their method of production, such as using forced labor or otherwise. This may also result in negative publicity regarding our production methods, and the alleged unethical or illegal practices of any of our suppliers could adversely affect our reputation. Our efforts to minimize the risk of a disruption from a single supplier may not always be effective, and we have experienced some disruptions in our supply chain during recent years, and could experience such disruptions in the future. Any continued or significant interruption in supply could cause significant delays in installations and repairs and the loss of current and potential customers. Although some specific shortages may be resolved, they may recur. From time to time, we may also experience product recalls and other unplanned product repairs or replacements with customers. We have occasionally experienced such product service events. There can be no assurance that any such future product service events will not be more extensive or more costly, material to us, and/or require the outlay of cash while we pursue cost recovery from manufacturers and suppliers, and there can be no assurance that we will be successful in pursuing recoveries from those third parties. Although our supplier agreements often include indemnification provisions, such indemnification may be limited in scope or amount, subject to exclusions or conditions, disputed by the supplier, or otherwise unavailable, including due to supplier financial distress or insolvency. If a previously installed component were found to be defective, we might not be able to recover the costs associated with its repair or replacement across our installed customer base, and these costs, or the diversion of technical personnel to address the defect could materially adversely affect our business, financial condition, results of operations, and cash flows. Such incidents may also harm our reputation and may result in litigation or other claims from customers. In the event of a product recall or litigation against our suppliers or us, we could experience a material adverse effect on our business, financial condition, results of operations, and cash flows.

We also rely on third-party software for key automation features in certain of our offerings and on the interoperation of that software with our own, such as our mobile applications and related platforms. In the event a third-party provider experiences any disruption in their IT systems, we could experience service disruptions. We could also experience service disruptions if customer usage patterns for such integrated or combined offerings exceed, or are otherwise outside of, system design parameters and we or our third-party provider is unable to make corrections. Such disruptions in the provision of services could result in our inability to meet customer demand, damage our reputation and customer relationships, and materially and adversely affect our business. We also rely on certain software technology that we license from third parties and use in our products and services to perform key functions and provide critical functionality. For example, we license the software platform for our monitoring operations from third parties. Because a number of our products and services incorporate technology developed and maintained by third parties, we are, to a certain extent, dependent upon such third parties’ ability to update, maintain, or enhance their current products and services; to ensure that their products are free of defects, security vulnerabilities, and compromise; to develop new products and services on a timely and cost-effective basis; and to respond to emerging industry standards, customer preferences, and other technological changes. In addition, certain of our current and future offerings incorporate advanced analytics, artificial intelligence, and sensing‑based technologies, which may increase our dependence on third‑party software, data, and infrastructure and heighten the risk that defects, performance limitations, security vulnerabilities, or regulatory constraints affecting such technologies could disrupt services or impair customer experience.

A disruption in our ability to provide security monitoring services or otherwise provide ongoing customer care to our customers could have a material adverse effect on our business. A disruption could occur for many reasons, including fire, natural disasters, including hurricanes, weather-related incidents, and the effects of climate change (such as sea level rise, drought, flooding, wildfires, and increased storm severity), health epidemics or pandemics, transmission interruption, extended power outages, human or other error, information systems and network-related events, such as technology failures, malicious acts, including cyber attacks, provider preferences regarding the signals that get transmitted, government actions, war, terrorism, sabotage, or other conflicts, or as a result of disruptions to internal and external networks or third party transmission lines. Monitoring and customer care also have in the past been and could in the future be disrupted by information systems and network-related eventsevents, such as technology failures, or cyber attacks, such as computer hacking, computer viruses, phishing, malware, ransomware, worms, or other malicious software, distributed denial of service attacks, malicious social engineering, or other destructive or disruptive activities that could also cause damage to our properties, equipment, and data, as well as our efforts to respond to, contain, and remediate such events, attacks, and activities. A failure of our redundant back-up procedures or a disruption affecting multiple monitoring facilities or work from home environments could disrupt our ability to provide security monitoring or customer care services to our customers. As a result of such disruptions, we may experience customer dissatisfaction and potential loss of confidence, and liabilities to customers or other third parties, each of which could harm our reputation and impact future revenues. We could also be subject to claims or litigation with respect to losses caused by such disruptions. Our insurance may not be sufficient to fully cover our losses or may not cover a particular event at all. Any such disruptions or outcomes could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

We rely on monitoring centers and customer care centers as an integral part of our ongoing business operations and we have deployed hybrid and remote working options. The closure of any site or any widespread absence of the employees remaining in any such site could result in a material disruption to our business. Because the majority ofmany employees who staff these operations currently conduct their jobs from home, ourwe workare fromdependent homeon environment could subject us to the failure of thethird-party communications networks servingand home-based infrastructure that we do not control. Disruptions or outages in these networks, or insufficient backup capabilities could impair our employees which we no longer controloperations, and whoadversely mayaffect notour havebusiness, sufficientfinancial backcondition, upand capabilities.results of operations. In addition, this work from home environment results in more home access points that are susceptible to cyber attacks, such as computer hacking, computer viruses, phishing, malware, ransomware, worms or other malicious software or malicious activities. In addition, our monitoring centers are listed by UL and must meet certain requirements to maintain that listing. UL has adopted a temporary standard that enables our operators to work from home while remaining within the listing requirements and we must ensure that each such home environment continues to meet all such requirements as well as the UL permanent requirements, which have been established by UL.requirements. Our employees who work from home may also experience a decrease in the quality of job performance, whether immediate or over time. Any such impact with respect to our employees who are working from home could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

Our independent, third-party authorized dealers may not be able to mitigate certain risks such as information technology and data security breaches, product liability, errors and omissions, and compliance with applicable laws and regulations.regulations, which could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

We generate a portion of our new customers through our authorized dealer network. We rely on independent, third-party authorized dealers to implement mitigation plans for certain risks they may experience, including, information systems and network-related events, such as technology breaches,failures, datacyber security breaches,attacks, product liability, errors and omissions, and compliance with applicable laws and regulations. In addition, our dealers rely on other third parties to submit orders and transmit data and may themselves be subject to many of these same risks. If our authorized dealers or the third parties on whom they rely experience any of these risks, or fail to implement mitigation plans for their risks, or if such implemented mitigation plans are inadequate or fail, we may be susceptible to business, legal, or reputational risks associated with our authorized dealers on which we rely to generate customers. Any interruption or permanent disruption in the generation of customer accounts or services provided by our authorized dealers could materially adversely affect our business, financial condition, results of operations, and cash flows.

We may pursue business opportunities that diverge from our current business model, or invest in new businesses, services, and technologies outside the traditional security, interactive and smart home services markets, any of which may fail to meet our expectations and materially adversely affect our business results or financial condition.

We have and will continue to pursue and invest in new business opportunities that may diverge from our current business model and practices, including expanding our products or service offerings, investing in new and unproven technologies, adding customer acquisition channels, and forming new alliances with companies to market our services. We can provide no assurance that any such business opportunities or investments will perform as expected. Among other negative effects, our pursuit of such business opportunities could cause our cost of investment in new customers to grow at a faster rate than our recurring revenue and fees collected at the time of installation. In addition, any new business partner may not agree to the terms and conditions or limitations on liability that we typically impose upon third parties. Acquisitions in recent years have also significantly expanded our risk profile. For example, in December 2021 we acquired the Solar Business although our core business was not then extended to the residential solar market. In September 2022, we announced a strategic relationship with State Farm and our intention to develop products and services to satisfy certain needs of State Farm’s property and casualty customers which representsrepresented a significant entry point into the insurance industry. Additionally, any new alliances or customer acquisition channels could require large investments of capital to develop such business, or have higher cost structures than our current arrangements, which could reduce operating margins and require more working capital. If working capital requirements exceed operating cash flow, we could be required to draw on our revolving credit facility, or pursue other external financing, which may not be readily available. We may also experience capital loss on some or all our investments, insufficient revenue from such investments to offset new liabilities assumed and expenses associated with these new investments, distraction of management from current operations, and issues not identified during pre-investment planning and due diligence that could cause us to fail to realize the anticipated benefits of such investments and incur unanticipated liabilities. In such cases, we may decide to revise our strategic plans and adjust our operating footprint to optimize our operations, or exit certain businesses or product lines entirely. For example, after recording a series of losses with respect to our acquisition of the Solar Business, we announced in November 2023 a series of steps to rationalize the Solar Business, and in January 2024, we made a determinationdecided to exit the Solar Business entirely.and Asin ofOctober June 30, 2024, substantially all operations of2025 the SolarState BusinessFarm hadDevelopment ceased.Agreement expired, and we ended our State Farm partnership programs in existing states. Any of these factors could materially adversely affect our business, financial condition, results of operations, and cash flows.

The following discussion and analysissection should be read in conjunction with our consolidated financial statements and the related notes thereto included elsewhere in this Annual Report. This section is intended to (i) provide material information relevant to the assessment of our results of operations and cash flows; (ii) enhance the understanding of our financial condition, changes in financial condition, and results of operations; and (iii) discuss material events and uncertainties known to management that are reasonably likely to cause reported financial information not to be necessarily indicative of future performance or of future financial condition.

Included below are year-over-year comparisons between 20242025 and 2023. The classification of the Solar Business as a discontinued operation during 2024 did not materially change the reported disclosures in the 2023 Annual Report with regard to year-over-year comparisons between 2023 and 2022, except with regard to income tax benefit (expense), as such discussions generally included analysis specific to activities within the Solar segment.2024. For information on year-over-year comparisons between 20232024 and 2022,2023, refer to Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report on Form 10-K for the 2023year Annualended Report,December 31, 2024, which was filed with the SEC on February 28,27, 2024.2025 (the “2024 Annual Report”).

The following discussion and analysissection contains forward-looking statements about our business, operations, and financial performance based on current plans and estimates involving risks, uncertainties, and assumptions, which could differ materially from actual results. Factors that could cause such differences are discussed in the sections of this Annual Report titled Item 1A “Risk Factors” and “Cautionary Statements Regarding Forward-Looking Statements.”

ADT is a leading provider of security, interactive, and smart home solutions serving residential 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. Our vision is to:

We evaluate our results using certain key performance indicators, including the operating metrics end-of-period recurring monthly revenue (“RMR”) and gross customer revenue attrition, as well as GAAP total revenue and the non-GAAP measuremeasures Adjusted EBITDA.EPS and Adjusted EBITDA (“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.

RMR and gross customer revenue attrition, as discussed below, have been recast for prior periods to exclude the former Commercial Business.Business during 2023. The definition of these metrics has historically excluded activity related to the Solar Business and as such, these metrics were not impacted by the presentation of the Solar Business as a discontinued operation. Adjusted EBITDA reflects our continuing operations for all periods presented.

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 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.”

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 EBITDAEarnings Before Interest, Taxes, Depreciation, and Amortization (“Adjusted EBITDA”), both from continuing operations.

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.

As of MarchJune 31,30, 2026, we served approximately 6.1 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.

As of MarchJune 31,30, 2026, gross customer revenue attrition was 13.1%, as compared to 12.6%12.8% in the prior year, driven by higher non-payment disconnects slightly offset by fewer relocations and voluntary disconnects.

As of MarchJune 31,30, 2026, RMR was $359$360 million, as compared to $360$363 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.

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. However, the ruling did not establish a process or timing for any potential refunds. We have not recorded a 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.

•Monitoring and related services revenue (“M&S Revenue”): (i) lower recurring revenue of $7$11 million and $18 million, respectively, primarily driven by a decrease in volume,volume and other items, including the Multifamily Divestiture, of $28$31 million and $59 million, respectively, partially offset by an increase in price of $20 million and $40 million, respectively, and (ii) higher revenue of $4$3 million and $8 million, respectively, primarily attributable to an increase in time and materials billings.

•Security installation, product, and other revenue: higher installation revenue of $12$32 million and $44 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.

•Monitoring and related services costs (“M&S Costs”): a decrease in M&S Costs of $2$5 million and $8 million, respectively, primarily due to lower customer service and maintenance costs of $4$7 million and $11 million, respectively, partially offset by higher interactive fees of $2 million.million and $3 million, respectively.

•Security installation, product, and other costs: an increase in installation and product costs of $5$19 million and $24 million, respectively, primarily due to a higher mix of professionally installed systems under the outright sales model discussed above.

•an increase in the allowance for credit losses of $19$4 million.

•an increase in the depreciation of property, plant,property and equipment of $5$8 million and $14 million, partiallyrespectively, offset byand

•a decrease in depreciation of subscriber system assets of $5$6 million.million and $11 million, respectively, due to the shift to an outright sales model.

The three and six months ended MarchJune 31,30, 2026, as compared to the prior year period,periods, primarily reflects a decrease in unrealized losses on interest rate swaps of $17$7 million and $24 million, respectively, with the remaining change due to lower interest rates on our long-term debt.

The three months ended MarchJune 31,30, 2026, as compared to the prior year period, primarilywas reflectsrelatively a loss on extinguishment of debt of $6 million recorded in the prior year period.flat.

The Company’s income tax expense for the three months ended MarchJune 31,30, 20252026 was $51$61 million, resulting in an effective tax rate for the period of 26.4%.28.2%. The effective tax rate primarily represents the federal statutory tax rate of 21.0%,21.0% and a state tax rate, net of federal benefits, of 5.6%.5.0%, and non-deductible items of 1.4%.

The increase in Adjusted EPS for the three months ended MarchJune 31,30, 2026, as compared to the prior year period, was primarily due toreflects:

•$0.01$0.02 per share due to a decrease in our diluted weighted average shares outstanding as a result of share repurchases,repurchases partially offset byand

•$0.02 per share due to an increase in therevenue allowancenet forof creditrelated losses.costs, offset by

(1) During 2026, primarily includes costs related to the Origin AI Acquisition.Acquisition and restructuring expenses.

The increasedecrease in Adjusted EBITDA for the three months ended MarchJune 31,30, 2026, as compared to the prior year period, was primarily due to:

•ahigher decrease in general and administrativeadvertising costs of $27$5 million and

•an increase in thehigher allowance for credit losses of $19$4 million.million, partially offset by