10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 FORM 10-Q

(Mark One)

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2018

OR

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from __________ to __________

Commission File Number: 001-38352

ADT Inc.

(Exact name of registrant as specified in its charter)

Delaware	47-4116383
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1501 Yamato Road

Boca Raton, Florida 33431

(561) 322-7235

(Address of principal executive offices, including zip code, Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes x   No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer x (Do not check if a smaller reporting company)	Smaller reporting company ¨
Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x

The number of outstanding shares of the registrant’s common stock, $0.01 par value, was 756,587,893 (excluding 10,291,168 unvested shares of common stock) as of November 2, 2018.

TABLE OF CONTENTS

		Page
Part I	FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS	1
	CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)	1
	CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)	2
	CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited)	3
	CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)	4
	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)	5
	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)	6
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	24
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	37
ITEM 4.	CONTROLS AND PROCEDURES	38
Part II	OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	38
ITEM 1A.	RISK FACTORS	38
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	40
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	40
ITEM 4.	MINE SAFETY DISCLOSURES	40
ITEM 5.	OTHER INFORMATION	41
ITEM 6.	EXHIBITS	41
SIGNATURES		42

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

ADT INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share and per share data) 

	September 30, 2018			December 31, 2017
Assets
Current assets:
Cash and cash equivalents	$	256,917		$	122,899
Accounts receivable trade, less allowance for doubtful accounts of $41,144 and $34,042, respectively	154,629			148,822
Inventories	79,332			85,672
Work-in-progress	28,481			21,252
Prepaid expenses and other current assets	107,364			77,241
Total current assets	626,723			455,886
Property and equipment, net	308,671			332,445
Subscriber system assets, net	2,906,559			2,892,683
Intangible assets, net	7,488,118			7,856,775
Goodwill	5,088,325			5,070,586
Deferred subscriber acquisition costs, net	400,946			282,478
Other assets	148,242			123,967
Total assets	$	16,967,584		$	17,014,820
Liabilities and stockholders' equity
Current liabilities:
Current maturities of long-term debt	$	48,327		$	48,060
Accounts payable	206,135			187,695
Deferred revenue	310,766			309,157
Accrued expenses and other current liabilities	444,572			351,340
Total current liabilities	1,009,800			896,252
Long-term debt	9,519,504			10,121,126
Mandatorily redeemable preferred securities—authorized 1,000,000 shares Series A of $0.01 par value; issued and outstanding 750,000 shares as of December 31, 2017	—			682,449
Deferred subscriber acquisition revenue	505,188			368,669
Deferred tax liabilities	1,370,142			1,376,708
Other liabilities	126,956			136,504
Total liabilities	12,531,590			13,581,708
Commitments and contingencies (See Note 8)
Stockholders' equity:
Common stock—authorized 3,999,000,000 shares of $0.01 par value; issued and outstanding shares of 766,772,382 and 641,118,571 as of September 30, 2018 and December 31, 2017, respectively	7,668			2
Additional paid-in capital	5,947,280			4,435,329
Accumulated deficit	(1,504,054		)	(998,212		)
Accumulated other comprehensive loss	(14,900		)	(4,007		)
Total stockholders' equity	4,435,994			3,433,112
Total liabilities and stockholders' equity	$	16,967,584		$	17,014,820

See Notes to Condensed Consolidated Financial Statements

1

ADT INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per share data)

	For the Quarters Ended						For the Nine Months Ended
	September 30, 2018			September 30, 2017			September 30, 2018			September 30, 2017
Monitoring and related services	$	1,029,399		$	1,012,292		$	3,069,817		$	3,017,026
Installation and other	118,917			70,670			326,406			192,944
Total revenue	1,148,316			1,082,962			3,396,223			3,209,970
Cost of revenue (exclusive of depreciation and amortization shown separately below)	263,286			224,140			757,905			658,095
Selling, general and administrative expenses	295,119			284,137			922,627			923,048
Depreciation and intangible asset amortization	474,772			467,929			1,446,768			1,387,245
Merger, restructuring, integration, and other	(6,708		)	14,505			1,770			54,170
Operating income	121,847			92,251			267,153			187,412
Interest expense, net	(152,405		)	(184,369		)	(501,217		)	(553,529		)
Loss on extinguishment of debt	(213,239		)	—			(274,836		)	(4,331		)
Other income	552			22,960			29,374			35,965
Loss before income taxes	(243,245		)	(69,158		)	(479,526		)	(334,483		)
Income tax benefit	7,701			7,128			19,840			38,922
Net loss	$	(235,544	)	$	(62,030	)	$	(459,686	)	$	(295,561	)
Net loss per share:
Basic and diluted	$	(0.31	)	$	(0.10	)	$	(0.62	)	$	(0.46	)
Weighted-average number of shares:
Basic and diluted	755,277			641,088			744,720			641,061
Cash dividends declared per common share	$	0.035		$	—		$	0.105		$	1.170

See Notes to Condensed Consolidated Financial Statements

2

ADT INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

(in thousands)

	For the Quarters Ended						For the Nine Months Ended
	September 30, 2018			September 30, 2017			September 30, 2018			September 30, 2017
Net loss	$	(235,544	)	$	(62,030	)	$	(459,686	)	$	(295,561	)
Other comprehensive income (loss), net of tax:
Change in fair value of cash flow hedges	8,621			—			6,332			—
Foreign currency translation and other	9,427			15,420			(17,225		)	29,008
Total other comprehensive income (loss), net of tax	18,048			15,420			(10,893		)	29,008
Comprehensive loss	$	(217,496	)	$	(46,610	)	$	(470,579	)	$	(266,553	)

See Notes to Condensed Consolidated Financial Statements

3

ADT INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(Unaudited)

(in thousands)

	Number of Common Shares		Common Stock		Additional Paid-In Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Stockholders' Equity
Balance as of December 31, 2017	641,119		$	2	$	4,435,329		$	(998,212	)	$	(4,007	)	$	3,433,112
Adoption of accounting standard, net of tax	—		—		—			34,430			—			34,430
Common stock issued for initial public offering proceeds, net of related fees and tax benefit	105,000		1,050		1,405,656			—			—			1,406,706
Other comprehensive loss, net of tax	—		—		—			—			(10,893		)	(10,893		)
Net loss	—		—		—			(459,686		)	—			(459,686		)
Dividends	—		—		—			(80,511		)	—			(80,511		)
Share-based compensation expense	20,655		—		112,905			—			—			112,905
Other	(2	)	6,616		(6,610		)	(75		)	—			(69		)
Balance as of September 30, 2018	766,772		$	7,668	$	5,947,280		$	(1,504,054	)	$	(14,900	)	$	4,435,994

See Notes to Condensed Consolidated Financial Statements

4

ADT INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

	For the Nine Months Ended
	September 30, 2018			September 30, 2017
Cash flows from operating activities:
Net loss	$	(459,686	)	$	(295,561	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and intangible asset amortization	1,446,768			1,387,245
Amortization of deferred subscriber acquisition costs	42,876			35,457
Amortization of deferred subscriber acquisition revenue	(56,381		)	(31,470		)
Share-based compensation expense	112,905			8,498
Deferred income taxes	(18,883		)	(46,133		)
Provision for losses on accounts receivable and inventory	43,948			42,322
Loss on extinguishment of debt	274,836			4,331
Other non-cash items, net	(1,920		)	36,804
Changes in operating assets and liabilities, net of the effects of acquisitions:
Deferred subscriber acquisition costs	(135,777		)	(122,225		)
Deferred subscriber acquisition revenue	193,357			188,345
Other, net	(36,079		)	54,727
Net cash provided by operating activities	1,405,964			1,262,340
Cash flows from investing activities:
Dealer generated customer accounts and bulk account purchases	(526,654		)	(486,037		)
Subscriber system assets	(428,292		)	(445,201		)
Capital expenditures	(94,151		)	(102,671		)
Acquisition of businesses, net of cash acquired	(48,473		)	(31,810		)
Other investing, net	13,550			16,549
Net cash used in investing activities	(1,084,020		)	(1,049,170		)
Cash flows from financing activities:
Proceeds from initial public offering, net of related fees	1,406,019			—
Proceeds from long-term borrowings	—			1,344,126
Repayment of long-term borrowings, including call premiums	(686,333		)	(712,690		)
Repayment of mandatorily redeemable preferred securities, including redemption premium	(852,769		)	—
Dividends on common stock	(52,959		)	(749,999		)
Other financing	(1,441		)	(11,023		)
Net cash used in financing activities	(187,483		)	(129,586		)
Effect of currency translation on cash	(441		)	61
Net increase in cash and cash equivalents and restricted cash and cash equivalents	134,020			83,645
Cash and cash equivalents and restricted cash and cash equivalents at beginning of period	126,782			90,893
Cash and cash equivalents and restricted cash and cash equivalents at end of period	$	260,802		$	174,538

See Notes to Condensed Consolidated Financial Statements

5

ADT INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Basis of Presentation and Summary of Significant Accounting Policies

Nature of Business—ADT Inc. (“ADT Inc.”), a company incorporated in the state of Delaware, and its wholly owned subsidiaries (collectively, the “Company”), are principally engaged in the sale, installation, servicing, and monitoring of electronic security and automation solutions for homes and businesses in the United States (or “U.S.”) and Canada. Prior to September 2017, ADT Inc. was named Prime Security Services Parent, Inc. ADT Inc. is majority-owned by Prime Security Services TopCo Parent, L.P. (“Ultimate Parent”). Ultimate Parent is owned by Apollo Investment Fund VIII, L.P. and related funds that are directly or indirectly managed by Apollo Global Management, LLC, its subsidiaries, and its affiliates (“Apollo” or the “Sponsor”), and management investors.

Basis of Presentation—The condensed consolidated financial statements include the accounts of ADT Inc. and its wholly owned subsidiaries and have been prepared in U.S. dollars in accordance with generally accepted accounting principles in the United States of America (“GAAP”). The condensed consolidated financial statements included herein are unaudited, but in the opinion of management, such financial statements include all adjustments, consisting of normal recurring adjustments, necessary to summarize fairly the Company’s financial position, results of operations, and cash flows for the interim periods presented. The interim results reported in these condensed consolidated financial statements should not be taken as indicative of results that may be expected for future interim periods or the full year. For a more comprehensive understanding of the Company and its interim results, these condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2017, which was filed with the U.S. Securities and Exchange Commission (“SEC”) on March 15, 2018.

The Condensed Consolidated Balance Sheet as of December 31, 2017 included herein was derived from the audited consolidated financial statements as of that date but does not include all the footnote disclosures from the annual financial statements.

The Company conducts business through its operating entities and reports financial and operating information in one segment. All intercompany transactions have been eliminated. The results of companies acquired are included in the condensed consolidated financial statements from the effective dates of the acquisitions.

Reclassifications—Certain prior period amounts have been reclassified to conform with the current period presentation.

Use of Estimates—The preparation of financial statements in accordance with GAAP requires management to make estimates and judgments that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities, and reported amounts of revenue and expenses. Significant estimates and judgments inherent in the preparation of the condensed consolidated financial statements include, but are not limited to, estimates of future cash flows and valuation-related assumptions associated with asset impairment testing and the valuation of certain intangible and tangible assets and liabilities in connection with the acquisition of businesses, useful lives and methods for depreciation and amortization, loss contingencies, and income taxes and tax valuation allowances. Actual results could differ materially from these estimates.

Stock Split—On January 4, 2018, the board of directors of the Company declared a 1.681-for-1 stock split (“Stock Split”) of the Company’s common stock issued and outstanding as of January 4, 2018. Unless otherwise noted, all share and per-share data included in these condensed consolidated financial statements have been adjusted to give effect to the Stock Split. In addition, the number of shares subject to, and the exercise price of, the Company’s outstanding options were adjusted to reflect the Stock Split.

Initial Public Offering—In January 2018, the Company completed its initial public offering (“IPO”) in which the Company issued and sold 105,000,000 shares of common stock at an initial public offering price of $14.00 per share. The Company received net proceeds of $1,406 million, after deducting underwriting discounts, commissions, and offering expenses, from the sale of its shares in the IPO. Upon consummation of the IPO, the Company’s common stock began trading on the New York Stock Exchange under the symbol “ADT.”

On February 21, 2018, the Company used approximately $649 million of the net proceeds from the IPO to voluntarily redeem $594 million aggregate principal amount of 9.250% Second-Priority Senior Secured Notes due 2023 (“Prime Notes”) and pay the related call premium. The aggregate principal amount of Prime Notes outstanding after the repayment was $2,546 million. Refer to Note 5 “Debt” for further discussion.

In connection with the IPO, the Company deposited $750 million of the net proceeds from the IPO into a segregated account (“Segregated Account”) for the purpose of redeeming the 750,000 shares of Series A $0.01 par value preferred securities (“Koch Preferred Securities”) at a future date. On July 2, 2018, the Company redeemed in full the original stated value of $750 million of the Koch Preferred Securities for total consideration of approximately $949 million, which included $103 million related to the

6

payment of the redemption premium, including tax reimbursements, and $96 million related to the accumulated dividend obligation on the Koch Preferred Securities (“Koch Redemption”). The Koch Redemption was funded with amounts in the Segregated Account and cash on hand. Refer to Note 6 “Mandatorily Redeemable Preferred Securities” for further discussion.

Merger, Restructuring, Integration, and Other—Included in merger, restructuring, integration, and other in the Condensed Consolidated Statements of Operations are certain direct and incremental costs resulting from acquisitions made by the Company, certain related integration efforts as a result of those acquisitions, costs related to the Company’s restructuring efforts, as well as fair value remeasurements and impairment charges on certain of the Company’s strategic investments.

Loss on Extinguishment of Debt—Included in loss on extinguishment of debt in the Condensed Consolidated Statements of Operations for the quarter and nine months ended September 30, 2018 is approximately $213 million associated with the Koch Redemption in July 2018 primarily related to the payment of the redemption premium and tax reimbursements, as well as the write-off of unamortized discount and deferred financing costs. Loss on extinguishment of debt for the nine months ended September 30, 2018 also includes approximately $62 million associated with the partial redemption of the Prime Notes in February 2018 primarily related to the payment of the call premium, as well as the write-off of a portion of the unamortized deferred financing costs. For the quarter and nine months ended September 30, 2017, loss on extinguishment of debt was not material. Refer to Note 6 “Mandatorily Redeemable Preferred Securities” and Note 5 “Debt” for further discussion.

Other Income—Included in other income for the nine months ended September 30, 2018 is approximately $22 million of licensing fees, as well as a gain of $7.5 million from the sale of equity in a third party that the Company received as part of a settlement, as described below. Other income for the quarter ended September 30, 2018 was not material.

For the quarter and nine months ended September 30, 2017, other income primarily includes foreign currency gains and losses from the translation of monetary assets and liabilities that are denominated in Canadian dollars related to intercompany loans. During the first quarter of 2018, the Company designated certain of these intercompany loans to be of a long-term-investment nature and began recognizing the related foreign currency gains and losses in accumulated other comprehensive loss in the Condensed Consolidated Balance Sheet.

Subscriber System Assets, Net—Capitalized equipment and installation costs incurred in connection with transactions in which the Company retains ownership of the security systems are included in subscriber system assets, net in the Condensed Consolidated Balance Sheets. Depreciation expense relating to subscriber system assets is included in depreciation and intangible asset amortization in the Condensed Consolidated Statements of Operations. The following tables set forth the gross carrying amounts, accumulated depreciation, and depreciation expense relating to subscriber system assets for the periods presented.

(in thousands)	September 30, 2018			December 31, 2017
Gross carrying amount	$	4,170,741		$	3,762,905
Accumulated depreciation	(1,264,182		)	(870,222		)
Subscriber system assets, net	$	2,906,559		$	2,892,683

	For the Quarters Ended				For the Nine Months Ended
(in thousands)	September 30, 2018		September 30, 2017		September 30, 2018		September 30, 2017
Subscriber system assets depreciation expense	$	137,488	$	135,055	$	410,236	$	401,275

Accrued Expenses and Other Current Liabilities—Accrued expenses and other current liabilities as of September 30, 2018 and December 31, 2017 consist of the following:

(in thousands)	September 30, 2018		December 31, 2017
Accrued interest	$	144,886	$	91,592
Payroll-related accruals	77,944		94,501
Other accrued liabilities	221,742		165,247
Accrued expenses and other current liabilities	$	444,572	$	351,340

Financial Instruments—The Company’s financial instruments primarily consist of cash and cash equivalents, restricted cash and cash equivalents, accounts receivable, accounts payable, debt, preferred securities, and derivative financial instruments. Due to their short-term and/or liquid nature, the fair values of cash and cash equivalents, restricted cash and cash equivalents, accounts receivable, and accounts payable approximated their respective carrying values.

7

Cash Equivalents—Included in cash and cash equivalents are investments in money market mutual funds, which totaled $136 million and $51 million as of September 30, 2018 and December 31, 2017, respectively. These investments are classified as Level 1 for purposes of fair value measurement.

Restricted Cash and Cash Equivalents—Restricted cash and cash equivalents are restricted for a specific purpose and cannot be included in the general cash account. Restricted cash and cash equivalents are included in prepaid expenses and other current assets in the Condensed Consolidated Balance Sheets and were not material as of September 30, 2018 and December 31, 2017.

Long-Term Debt Instruments—The fair values of the Company’s long-term debt instruments are determined using broker-quoted market prices, which are considered Level 2 inputs. The carrying amount of debt outstanding, if any, under the Company’s revolving credit facilities approximates fair value as interest rates on these borrowings approximate current market rates and are considered Level 2 inputs.

The carrying value and fair value of the Company’s long-term debt instruments that are subject to fair value disclosures as of September 30, 2018 and December 31, 2017 are as follows:

	September 30, 2018				December 31, 2017
(in thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Debt instruments, excluding capital lease obligations	$	9,532,794	$	9,840,892	$	10,128,020	$	10,868,626

Koch Preferred Securities—As stated above, the Company redeemed the Koch Preferred Securities in full on July 2, 2018.

As of December 31, 2017, the Koch Preferred Securities had a carrying value and fair value of $682 million and $925 million, respectively. The fair value was estimated using a discounted cash-flow approach in conjunction with a binomial lattice interest rate model to incorporate the contractual dividends and the Company’s ability to redeem the Koch Preferred Securities. Key input assumptions to the valuation analysis included the credit spread, yield volatility, and expected time to redemption, which are considered Level 3 inputs. The credit spread was estimated using the credit spread at issuance of the Koch Preferred Securities and adjusted for the change in observed publicly traded debt of the Company between the issuance date and the measurement date. The yield volatility estimate was based on the historical yield volatility observed from comparable public high yield debt. The expected time to redemption was based on the Company’s expectations.

Refer to Note 6 “Mandatorily Redeemable Preferred Securities” for further discussion.

Derivative Financial Instruments—Derivative financial instruments are reported at fair value as either assets or liabilities in the Condensed Consolidated Balance Sheets. For derivative instruments that qualify for hedge accounting, changes in fair values are recognized in accumulated other comprehensive loss in the Condensed Consolidated Balance Sheets. For derivative instruments for which the Company does not apply hedge accounting, changes in fair values are recognized in the Condensed Consolidated Statements of Operations according to the nature of the hedged items. During the quarters and nine months ended September 30, 2018 and 2017, changes in fair values of the Company’s derivative instruments were not material. Refer to Note 9 “Derivative Financial Instruments” for further discussion.

Guarantees—In the normal course of business, the Company is liable for contract completion and product performance. The Company does not believe such obligations will significantly affect its financial position, results of operations, or cash flows. As of September 30, 2018 and December 31, 2017, the Company had no material guarantees other than $55 million and $54 million, respectively, primarily in standby letters of credit related to its insurance programs.

Settlements—In January 2018, the Company received $10 million in connection with a litigation settlement, which is reflected as a benefit to selling, general and administrative expenses in the Condensed Consolidated Statement of Operations for the nine months ended September 30, 2018.

In February 2018, the Company entered into a settlement agreement (“February 2018 Settlement Agreement”), the terms of which entitled the Company to receive $7.5 million of non-cash compensation in the form of an equity interest in the counterparty to the agreement (“Counterparty”), which the Company reflected as a benefit to selling, general and administrative expenses during the first quarter of 2018. Additionally, the February 2018 Settlement Agreement entitled the Company to receive $24 million in licensing fees over a forty-eight-month period.

In the second quarter of 2018, the Counterparty was acquired by a third party. The terms of the acquisition entitled the Company to approximately $15 million in exchange for the Company’s equity interest in the Counterparty. The Company received approximately $12 million in cash associated with the sale of this equity interest during the second quarter of 2018, and recognized a gain of $7.5 million, which is reflected in other income in the Condensed Consolidated Statements of Operations. Additionally, as a result of the Counterparty’s acquisition, the Company concluded that amounts due under the license arrangement were probable

8

to be collected. Therefore, the Company recognized a benefit of $22 million associated with the license arrangement, which is discounted to reflect a significant financing component and is reflected in other income in the Condensed Consolidated Statements of Operations.

Hurricanes—The Company evaluates the potential financial and business impacts that hurricanes or other natural disasters may have on its business and operations. In the second half of 2017, there were three hurricanes impacting areas in which the Company operates that resulted in power outages and service disruptions to certain customers of the Company. As of September 30, 2018, the Company determined that the financial impact from these hurricanes, as well as others that occurred during 2018, was not material.

Recently Adopted Accounting Pronouncements—In May 2014, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance that sets forth a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The Company adopted this new standard and its related amendments effective on January 1, 2018 using the modified retrospective transition method, whereby the cumulative effect of initially applying the new standard is recognized as an adjustment to the opening balance of stockholders’ equity. Results for reporting periods beginning on or after January 1, 2018 are presented under this new standard, while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for the prior period.

The largest impact from the new standard relates to the timing of recognition of certain incremental selling costs associated with acquiring new customers. Under the new standard, certain costs previously amortized over the initial contract term will now be amortized in pools based on the expected life of a customer relationship using an accelerated method over 15 years. To a lesser extent, the adoption of the new standard impacted the identification of performance obligations and the allocation of transaction price to those performance obligations for certain sales of security systems sold outright to customers.

As of January 1, 2018, due to the cumulative impact of adopting this new standard, the Company recorded a net increase to the opening balance of stockholders’ equity of $34 million, which is net of tax of $12 million. The impact to the line items in the Condensed Consolidated Balance Sheet was as follows:

	Balance at December 31, 2017			Revenue Standard Adoption Adjustment		Balance at January 1, 2018
(in thousands)
Assets
Prepaid expenses and other current assets	$	77,241		$	6,615	$	83,856
Deferred subscriber acquisition costs, net	282,478			33,380		315,858
Other assets	123,967			6,321		130,288
Liabilities
Deferred tax liabilities	1,376,708			11,886		1,388,594
Stockholders' equity
Accumulated deficit	(998,212		)	34,430		(963,782		)

Refer to Note 2 “Revenue” for further discussion related to the impact of adopting this standard.

In January 2016, the FASB issued authoritative guidance related to the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. Under the new guidance, equity investments with readily determinable fair values, except those accounted for under the equity method, will be measured at fair value with changes in fair value recognized in earnings. Equity investments that do not have readily determinable fair values may be measured at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. In addition, this update clarifies the guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from the unrealized losses on certain debt securities. The Company adopted this guidance effective on January 1, 2018. Fair value remeasurements on strategic investments and other equity investments are reflected in operating expenses and other income/expense, respectively, in the Condensed Consolidated Statements of Operations. The adoption of this guidance did not have a material impact to the condensed consolidated financial statements.

In November 2016, the FASB issued authoritative guidance amending the presentation of restricted cash within the statement of cash flows. The new guidance requires amounts generally described as restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The Company adopted this guidance effective on January 1, 2018 using the retrospective transition method for all periods presented in the Condensed Consolidated Statements of Cash Flows. The following table provides

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a reconciliation of the amount of cash and cash equivalents and restricted cash and cash equivalents reported within the Condensed Consolidated Balance Sheets to the total of the same such amounts shown in the Condensed Consolidated Statements of Cash Flows:

(in thousands)	September 30, 2018		December 31, 2017
Cash and cash equivalents	$	256,917	$	122,899
Restricted cash and cash equivalents in prepaid expenses and other current assets	3,885		3,883
Cash and cash equivalents and restricted cash and cash equivalents at end of period	$	260,802	$	126,782

In May 2017, the FASB issued authoritative guidance that addresses changes to the terms or conditions of a share-based payment award, specifically regarding which changes to the terms or conditions of a share-based payment award would require modification accounting. This guidance does not change the accounting for modifications but clarifies that an entity should apply modification accounting except when the fair value, vesting conditions, and classification of the modified award are the same as the original award immediately before the modification. The Company adopted this guidance effective on January 1, 2018 and applied the guidance prospectively to share-based payment award modifications subsequent to the date of adoption. The adoption of this guidance did not have a material impact to the condensed consolidated financial statements. Refer to Note 10 “Share-based Compensation” for further discussion.

In August 2017, the FASB issued authoritative guidance which simplifies the application of hedge accounting standards to better portray the economic results of risk management activities in the financial statements. The guidance aligns the recognition and presentation of the effects of hedging instruments with the hedged items in the financial statements and includes certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness at inception and on an ongoing basis. The guidance also eliminates the requirement to measure and disclose the ineffective portion of the change in fair value of cash flow hedges. The Company elected to early adopt this guidance in the second quarter of 2018, and applied the guidance to qualified hedging instruments entered into subsequent to the date of adoption. The Company did not have any derivative instruments classified as hedging instruments prior to the date of adoption. The adoption of this guidance did not have a material impact to the condensed consolidated financial statements. Refer to Note 9 “Derivative Financial Instruments” for further discussion.

In June 2018, the FASB issued authoritative guidance related to the accounting for non-employee share-based compensation transactions, which aligns the guidance for share-based payment transactions for acquiring goods and services from non-employees, with certain exceptions, with the guidance for share-based compensation for employees. The Company elected to early adopt this guidance in the third quarter of 2018. The adoption of this guidance did not have a material impact to the condensed consolidated financial statements.

Recently Issued Accounting Pronouncements—In February 2016, the FASB issued authoritative guidance on accounting for leases. This new guidance, and related amendments, requires lessees to recognize a right-to-use asset and a lease liability for substantially all leases, and to disclose key information about leasing arrangements. The recognition, measurement, and presentation of expenses and cash flows for lessees will remain significantly unchanged from current guidance. This guidance is effective for all public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and will be effective for the Company in the first quarter of 2019. Early adoption is permitted. The guidance requires that a company adopt the standard using a modified retrospective approach, however, recent amendments allow for an alternative transition method whereby a company can apply this new guidance at the adoption date and recognize the cumulative effect of adoption as an adjustment to the opening balance of stockholders’ equity. The Company is currently evaluating the transition method, use of practical expedients, and impact of this guidance.

In January 2017, the FASB issued authoritative guidance to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. This guidance will be effective for the Company for annual or any interim goodwill impairment tests beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests.

In August 2018, the FASB issued authoritative guidance to align the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is classified as a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and will be effective for the Company in the first quarter of 2020. Early adoption is permitted. Companies may apply this guidance either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is currently evaluating the impact of this guidance.

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2. Revenue

The Company generates revenue primarily through contractual monthly recurring fees received for monitoring and related services provided to customers. In transactions in which the Company provides monitoring and related services but maintains ownership of the security systems, the Company’s performance obligations primarily include monitoring, related services (such as maintenance agreements), and a material right associated with the non-refundable fees received in connection with the initiation of a monitoring contract (referred to as deferred subscriber acquisition revenue) that the customer will not need to pay upon a renewal of the contract. The portion of the transaction price associated with monitoring and related services revenue is recognized as those services are provided and is reflected in monitoring and related services revenue in the Condensed Consolidated Statements of Operations.

Deferred subscriber acquisition revenue is deferred and reported as deferred subscriber acquisition revenue in the Condensed Consolidated Balance Sheets upon initiation of a monitoring contract. Deferred subscriber acquisition revenue is amortized into installation and other revenue in the Condensed Consolidated Statements of Operations over the estimated life of the customer relationship using an accelerated method. Amortization of deferred subscriber acquisition revenue was $21 million and $56 million for the quarter and nine months ended September 30, 2018, respectively.

In transactions involving security systems that are sold outright to customers, the Company’s performance obligations include monitoring, related services, and the sale and installation of the security systems. For such arrangements, the Company allocates a portion of the transaction price to each performance obligation based on a relative standalone selling price. Revenue associated with the sale and installation of security systems is recognized once installation is complete and is reflected in installation and other revenue in the Condensed Consolidated Statements of Operations. Revenue associated with monitoring and related services is recognized as those services are provided and is reflected in monitoring and related services revenue in the Condensed Consolidated Statements of Operations.

Early termination of the contract by the customer results in a termination charge in accordance with the contract terms. Contract termination charges are recognized in monitoring and related services revenue in the Condensed Consolidated Statements of Operations when collectability is probable. Amounts collected from customers for sales and other taxes are reported net of the related amounts remitted.

The Company incurs certain incremental contract costs (referred to as deferred subscriber acquisition costs), including selling expenses (primarily commissions), related to acquiring customers, which are included in deferred subscriber acquisition costs, net in the Condensed Consolidated Balance Sheets. Commissions paid in connection with acquiring customers are determined based on the value of the contractual fees. Amortization of deferred subscriber acquisition costs was $16 million and $43 million for the quarter and nine months ended September 30, 2018, respectively. Contract assets associated with outright sales are not material.

Customer billings for services not yet rendered are deferred and recognized as revenue as services are provided. These fees are recorded as current deferred revenue in the Condensed Consolidated Balance Sheets as the Company expects to satisfy any remaining performance obligations, as well as recognize the related revenue, within twelve months. Accordingly, the Company has applied the practical expedient regarding deferred revenue to exclude the value of remaining performance obligations if (i) the contract has an original expected term of one year or less or (ii) the Company recognizes revenue in proportion to the amount it has the right to invoice for services performed.

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The impact from the adoption of the new revenue standard on the Company’s condensed consolidated financial statements as of and for the quarter and nine months ended September 30, 2018 was as follows:

	For the Quarter Ended September 30, 2018									For the Nine Months Ended September 30, 2018
	As Reported			Balances without Adoption of Standard			Effect of Adoption Increase / (Decrease)			As Reported			Balances without Adoption of Standard			Effect of Adoption Increase / (Decrease)
Statements of Operations (in thousands)
Monitoring and related services	$	1,029,399		$	1,031,006		$	(1,607	)	$	3,069,817		$	3,074,260		$	(4,443	)
Installation and other	118,917			117,288			1,629			326,406			320,635			5,771
Total revenue	1,148,316			1,148,294			22			3,396,223			3,394,895			1,328
Cost of revenue (exclusive of depreciation and amortization shown separately below)	263,286			263,286			—			757,905			757,905			—
Selling, general and administrative expenses(1)	295,119			302,039			(6,920		)	922,627			943,010			(20,383		)
Depreciation and intangible asset amortization	474,772			474,772			—			1,446,768			1,446,768			—
Merger, restructuring, integration, and other	(6,708		)	(6,708		)	—			1,770			1,770			—
Operating income	121,847			114,905			6,942			267,153			245,442			21,711
Interest expense, net	(152,405		)	(152,405		)	—			(501,217		)	(501,217		)	—
Loss on extinguishment of debt	(213,239		)	(213,239		)	—			(274,836		)	(274,836		)	—
Other income	552			552			—			29,374			29,374			—
Loss before income taxes	(243,245		)	(250,187		)	6,942			(479,526		)	(501,237		)	21,711
Income tax benefit	7,701			9,123			(1,422		)	19,840			24,703			(4,863		)
Net loss	$	(235,544	)	$	(241,064	)	$	5,520		$	(459,686	)	$	(476,534	)	$	16,848

_________________

(1) For the quarter and nine months ended September 30, 2018, the effect of adoption includes approximately $5 million and $14 million, respectively, associated with non-cash amortization expense of deferred subscriber acquisition costs.

	As Reported			Balances without Adoption of Standard			Effect of Adoption Increase / (Decrease)
Balance Sheet (in thousands)
Assets
Prepaid expenses and other current assets	$	107,364		$	98,851		$	8,513
Deferred subscriber acquisition costs, net	400,946			346,067			54,879
Other assets	148,242			143,607			4,635
Liabilities
Deferred tax liabilities	1,370,142			1,353,393			16,749
Stockholders' equity
Accumulated deficit	(1,504,054		)	(1,555,332		)	51,278

Disaggregated Revenue

The following table sets forth the Company’s revenues disaggregated by source:

(in thousands)	For the Quarter Ended September 30, 2018		For the Nine Months Ended September 30, 2018
Monitoring and related services	$	1,029,399	$	3,069,817
Installation and other	118,917		326,406
Total revenue	$	1,148,316	$	3,396,223

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3. Acquisitions

From time to time, the Company may pursue acquisitions of companies that either strategically fit with the Company’s existing core business or expand the Company’s electronic security and automation solutions in new and attractive adjacent markets. The Company acquired four businesses during the nine months ended September 30, 2018, and paid $48 million, net of cash acquired. In addition, the Company recorded preliminary amounts of approximately $23 million of goodwill and approximately $20 million of customer relationships in the Condensed Consolidated Balance Sheet related to these acquisitions.

Dealer Generated Customer Accounts and Bulk Account Purchases

The Company paid $527 million and $486 million for customer contracts for electronic security services generated through the Company’s network of authorized dealers (“ADT Authorized Dealer Program”) and bulk account purchases during the nine months ended September 30, 2018 and 2017, respectively. These contracts are reported in the Condensed Consolidated Balance Sheets as intangible assets, net, and are recorded at their contractually determined purchase price.

4. Goodwill and Other Intangible Assets

Goodwill

There were no material changes in the carrying amount of goodwill during the nine months ended September 30, 2018.

Other Intangible Assets

The following table sets forth the gross carrying amounts, accumulated amortization, and net carrying amounts of the Company’s other intangible assets as of September 30, 2018 and December 31, 2017:

	September 30, 2018							December 31, 2017
(in thousands)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Definite-lived intangible assets:
Contracts and related customer relationships	$	7,284,196	$	(2,545,113	)	$	4,739,083	$	6,748,355	$	(1,749,327	)	$	4,999,028
Dealer relationships	1,603,490		(209,915		)	1,393,575		1,605,910		(146,299		)	1,459,611
Other	196,898		(174,438		)	22,460		195,363		(130,227		)	65,136
Total definite-lived intangible assets	9,084,584		(2,929,466		)	6,155,118		8,549,628		(2,025,853		)	6,523,775
Indefinite-lived intangible assets:
Trade name	1,333,000		—			1,333,000		1,333,000		—			1,333,000
Intangible assets	$	10,417,584	$	(2,929,466	)	$	7,488,118	$	9,882,628	$	(2,025,853	)	$	7,856,775

For the nine months ended September 30, 2018, the changes in the net carrying amount of contracts and related customer relationships were as follows:

(in thousands)
Balance as of December 31, 2017	$	4,999,028
Acquisition of customer relationships	20,246
Customer contract additions, net of dealer charge-backs	525,729
Amortization	(798,267		)
Currency translation and other	(7,653		)
Balance as of September 30, 2018	$	4,739,083

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During the nine months ended September 30, 2018, the weighted-average amortization period for customer contract additions primarily purchased through the ADT Authorized Dealer Program was 15 years. Amortization expense for definite-lived intangible assets for the periods presented was as follows:

	For the Quarters Ended				For the Nine Months Ended
(in thousands)	September 30, 2018		September 30, 2017		September 30, 2018		September 30, 2017
Definite-lived intangible asset amortization expense	$	293,535	$	292,023	$	906,233	$	864,918

The estimated aggregate amortization expense for definite-lived intangible assets is expected to be as follows:

(in thousands)
Remainder of 2018	$	295,632
2019	1,143,309
2020	1,089,492
2021	987,260
2022	640,412
2023	284,929

5. Debt

First Lien Credit Agreement Amendment

On March 16, 2018, the Company entered into an Incremental Assumption and Amendment Agreement No. 6 (“2018 First Lien Credit Agreement Amendment”), which further amended and restated the First Lien Credit Agreement (the First Lien Credit Agreement, as amended, restated, supplemented, or otherwise waived prior to the effective date of the 2018 First Lien Credit Agreement Amendment (“Existing Credit Agreement”) and, as amended by the 2018 First Lien Credit Agreement Amendment (“Amended and Restated Credit Agreement”)).

Prior to the effectiveness of the 2018 First Lien Credit Agreement Amendment, the Existing Credit Agreement included a revolving credit facility of $255 million maturing on May 2, 2021, and a revolving credit facility of $95 million maturing on July 1, 2020. In connection with the 2018 First Lien Credit Agreement Amendment, the existing revolving credit facilities were replaced with a first lien revolving credit facility with an aggregate commitment of up to $350 million maturing on March 16, 2023, subject to the repayment, extension, or refinancing with longer maturity debt of certain of the Company’s other indebtedness (“2023 Revolving Credit Facility”). Borrowings under the 2023 Revolving Credit Facility will bear interest at a rate equal to, at the Company’s option, either (a) a London Interbank Offered Rate (“LIBOR”) determined by reference to the costs of funds for Eurodollar deposits for the interest period relevant to such borrowing, adjusted for certain additional costs, or (b) a base rate determined by reference to the highest of (i) the federal funds rate plus 0.50% per annum, (ii) the prime rate of Barclays Bank PLC, and (iii) one-month adjusted LIBOR plus 1.00% per annum, in each case, plus the applicable margin of 2.75% for LIBOR loans and 1.75% for base rate loans. The applicable margin for borrowings under the 2023 Revolving Credit Facility is subject to one step-down based on a certain specified net first lien leverage ratio.

In addition, the Amended and Restated Credit Agreement requires the Company to pay a commitment fee between 0.375% and 0.50% (determined based on a net first lien leverage ratio) in respect of the unused commitments under the 2023 Revolving Credit Facility.

The term loan facilities under the Amended and Restated Credit Agreement continue to have the same terms as provided under the Existing Credit Agreement. Additionally, the parties to the Amended and Restated Credit Agreement continue to have the same obligations set forth in the Existing Credit Agreement.

The impact to the condensed consolidated financial statements as a result of the 2018 First Lien Credit Agreement Amendment was not material.

As of September 30, 2018, the Company had $350 million in available borrowing capacity under its 2023 Revolving Credit Facility.

Prime Notes

On February 21, 2018, the Company used approximately $649 million of the net proceeds from the IPO to voluntarily redeem $594 million aggregate principal amount of the Prime Notes and pay the related call premium. The Company recognized

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a loss on extinguishment of debt of approximately $62 million related to the call premium and the write-off of a portion of the unamortized deferred financing costs. The aggregate principal amount of Prime Notes outstanding after the repayment was $2,546 million.

See Note 1 “Basis of Presentation and Summary of Significant Accounting Policies” for further discussion on the fair value of the Company’s debt.

6. Mandatorily Redeemable Preferred Securities

In connection with the acquisition of The ADT Security Corporation (formerly named The ADT Corporation) (“The ADT Corporation”), the Company issued 750,000 shares of the Koch Preferred Securities to an affiliate of Koch Industries, Inc. (“Koch Investor”). In January 2018, in connection with the IPO, the Company deposited $750 million of the net proceeds from the IPO into the Segregated Account for the purpose of redeeming the Koch Preferred Securities at a future date. In May 2018, the Company entered into a written consent with the Koch Investor (“May 2018 Consent”), whereby the Company agreed to redeem all of the outstanding Koch Preferred Securities, which occurred on July 2, 2018.

Prior to redemption, the Koch Preferred Securities accrued and accumulated preferential cumulative dividends in arrears on the then current stated value of the Koch Preferred Securities. Dividends were payable quarterly, in cash, at a rate equal to the daily five-year treasury rate plus 9.00% per annum. In the event that dividends for any quarter were not paid in cash, dividends for such quarter would accrue and accumulate at a rate equal to the daily five-year treasury rate plus 9.75% per annum and would be added to the then current stated value of the Koch Preferred Securities at the end of such quarter.

The quarterly dividend obligation on the Koch Preferred Securities is reflected in interest expense, net in the Condensed Consolidated Statements of Operations. Beginning in the third quarter of 2017, in lieu of declaring and paying the dividend obligation on the Koch Preferred Securities, the Company elected to increase the accumulated stated value of such securities, which increased the reported balance of mandatorily redeemable preferred securities on the Condensed Consolidated Balance Sheet. Prior to the Koch Redemption, the reported balance of mandatorily redeemable preferred securities on the Condensed Consolidated Balance Sheet reflected approximately $96 million associated with the dividend obligation on the Koch Preferred Securities, of which approximately $51 million related to the dividend obligation on the Koch Preferred Securities for the nine months ended September 30, 2018. For the quarter and nine months ended September 30, 2017, the dividend obligation on the Koch Preferred Securities was $22 million and $63 million, respectively.

On July 2, 2018, the Company redeemed in full the original stated value of $750 million of the Koch Preferred Securities for total consideration of approximately $949 million, which included approximately $103 million related to the redemption premium and tax reimbursements, as well as $96 million related to the accumulated dividend obligation on the Koch Preferred Securities. The Koch Redemption was funded with amounts in the Segregated Account and cash on hand. During the quarter and nine months ended September 30, 2018, the Company recognized a loss on extinguishment of debt of $213 million associated with the payment of the redemption premium, including tax reimbursements, and the write-off of unamortized discount and deferred financing costs.

Refer to Note 1 “Basis of Presentation and Summary of Significant Accounting Policies” for further discussion on the fair value of the Koch Preferred Securities.

Koch Agreements

Prior to the consummation of the IPO, the Company, Prime Security Services TopCo Parent GP, LLC, as the general partner of Ultimate Parent, Ultimate Parent, and the Koch Investor entered into an Amended and Restated Series A Investor Rights Agreement, which was amended and restated by the Second Amended and Restated Series A Investor Rights Agreement (“Investor Rights Agreement”), which contained certain designations, rights, preferences, powers, restrictions, and limitations that could require the Company to redeem all or a portion of the Koch Preferred Securities or require that the Company obtain the consent of the holders of a majority of the Koch Preferred Securities before taking certain actions or entering into certain transactions.

While the certificate of designation of the Koch Preferred Securities restricted the Company from paying dividends on its common stock, the Koch Investor consented in January 2018 to a one-time distribution on or before June 30, 2018, not to exceed $50 million, which the Company used to declare a dividend on its common stock on March 15, 2018. Further, in the May 2018 Consent, the Koch Investor consented to an additional one-time distribution in an aggregate amount not to exceed $27 million, which the Company used to declare a dividend on its common stock on May 9, 2018.

Following the Koch Redemption, the Investor Rights Agreement was automatically terminated in accordance with its terms.

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7. Income Taxes

Unrecognized Tax Benefits

During the quarter ended September 30, 2018, the Company had a net increase to its unrecognized tax benefits of $13 million primarily related to tax attributes from the Company’s pre-Separation from Tyco (as defined in Note 8) tax returns. The Company’s unrecognized tax benefits relate to tax years that remain subject to audit by the taxing authorities in the U.S. federal, state and local, and foreign jurisdictions. Based on the current status of its income tax audits, the Company does not believe that a significant portion of its unrecognized tax benefits will be resolved in the next twelve months.

Effective Tax Rate

The Company’s income tax benefit for the quarter and nine months ended September 30, 2018 was $8 million and $20 million, respectively, resulting in an effective tax rate of 3.2% and 4.1%, respectively. The effective tax rates for the quarter and nine months ended September 30, 2018 reflect the reduced federal income tax rate of 21.0% as a result of the Tax Cuts and Jobs Act (“Tax Reform”).

The effective tax rate for the quarter ended September 30, 2018 also reflects an 11.2% unfavorable impact of permanent non-deductible expenses primarily associated with the Koch Preferred Securities, a 5.6% unfavorable impact from an increase in the Company’s unrecognized tax benefits, and a 4.9% unfavorable impact from state legislative changes.

The effective tax rate for the nine months ended September 30, 2018 also reflects an 11.6% unfavorable impact of permanent non-deductible expenses primarily associated with the Koch Preferred Securities, a 7.3% unfavorable impact of future non-deductible share-based compensation, and a 4.2% unfavorable impact from state legislative changes, offset by a 5.6% favorable impact from tax adjustments related to prior year state returns filed in the first quarter of 2018.

The Company’s income tax benefit for the quarter and nine months ended September 30, 2017 was $7 million and $39 million, respectively, resulting in an effective tax rate of 10.3% and 11.6%, respectively. The effective tax rates for the quarter and nine months ended September 30, 2017 primarily reflect the impact of an increase in the Company’s unrecognized tax benefits related to income tax positions primarily associated with prior years, including pre-Separation from Tyco tax years, the impact of legislative changes, an increase in the Company’s valuation allowance for certain deferred tax assets, and the impact of permanent non-deductible expenses.

The effective tax rates reflect the tax impact of permanent items, state tax expense, changes in tax laws, and non-U.S. net earnings. The effective tax rate can vary from period to period due to permanent tax adjustments, discrete items such as the settlement of income tax audits and changes in tax laws, as well as recurring factors such as changes in the overall effective state tax rate.

Tax Reform

In connection with Tax Reform, the SEC issued Staff Accounting Bulletin No. 118 that allows companies to record provisional estimates of the effects of the legislative change and a one-year measurement period to finalize the accounting of those effects. During the quarter and nine months ended September 30, 2018, the Company did not record any significant measurement period adjustments to the provisional amounts recorded in the 2017 consolidated financial statements. The Company expects to complete the accounting for the impact of Tax Reform by the end of 2018.

Further, in accounting for the impacts of tax on ‘global intangible low taxed income’ (“GILTI”), the Company elected to treat the impact of GILTI as a period cost in each year incurred.

8. Commitments and Contingencies

Purchase Obligations

As of September 30, 2018, there have been no material changes to the Company’s purchase obligations outside the ordinary course of business as compared to December 31, 2017.

Legal Proceedings

The Company is subject to various claims and lawsuits in the ordinary course of business, including from time to time, contractual disputes, employment matters, product and general liability claims, claims that the Company has infringed on the

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intellectual property rights of others, claims related to alleged security system failures, and consumer and employment class actions. In the ordinary course of business, the Company is also subject to regulatory and governmental examinations, information requests and subpoenas, inquiries, investigations, and threatened legal actions and proceedings. In connection with such formal and informal inquiries, the Company receives numerous requests, subpoenas, and orders for documents, testimony, and information in connection with various aspects of its activities. The Company has recorded accruals for losses that it believes are probable to occur and are reasonably estimable. While the ultimate outcome of these matters cannot be predicted with certainty, the Company believes that the resolution of any such proceedings (other than matters specifically identified below), will not have a material adverse effect on its financial position, results of operations, or cash flows.

Environmental Matters

On October 25, 2013, ADT was notified by subpoena that the Office of the Attorney General of California, in conjunction with the Alameda County District Attorney, is investigating whether certain of ADT’s electronic waste disposal policies, procedures, and practices are in violation of the California Business and Professions Code and the California Health and Safety Code.  During 2016, Protection One was also notified by the same parties that it was subject to a similar investigation. Both the Protection One and ADT investigations are ongoing and the Company is attempting to coordinate joint handling of both investigations and is cooperating fully with the respective authorities.

Wireless Encryption Litigation

The Company is subject to five class action claims regarding wireless encryption in certain ADT security systems. Jurisdictionally, three of the five cases are in Federal Court (in districts within Illinois, Arizona, and California), and both of the remaining two cases are in Florida State Court (both in Palm Beach County Circuit Court). Each of the five plaintiffs brought a claim under the respective state’s consumer fraud statute alleging that The ADT Corporation and each of its consolidated subsidiaries prior to the consummation of the ADT Acquisition made misrepresentations and material omissions in its advertising regarding the unencrypted wireless signal pathways in certain security systems monitored by The ADT Corporation. The complaints in all five cases further allege that certain security systems monitored by The ADT Corporation are not secure because the wireless signal pathways are unencrypted and can be easily hacked. On January 10, 2017, the parties agreed to settle all five class action lawsuits. On October 16, 2017, the U.S. District Court for the Northern District of California entered an order granting preliminary approval of the settlement. Notice to class members was issued November 16, 2017, and the settlement is currently in the administration process. A fairness hearing regarding the settlement was conducted on February 1, 2018. The Court took the matter under advisement and subsequently stayed the settlement proceedings pending an appellate ruling on a related legal issue. The deadline for filing claims expired on February 26, 2018. The settlement administrator will not pay any claims until the Court enters an order granting final approval of the settlement.

TCPA Class Action relating to 2G-3G Radio Conversion Project

In August 2016, the Company was served with a class action complaint pending in the United States District Court for the Northern District of Georgia filed by a customer alleging that The ADT Corporation violated the Telephone Consumer Protection Act of 1991 (“TCPA”) by calling his cell phone, which was the only telephone number he provided to The ADT Corporation for his customer account, as part of The ADT Corporation’s efforts to communicate with customers affected by the Federal Communications Commission order allowing wireless carriers to sunset 2G wireless networks. Plaintiff seeks to represent a nationwide class of all The ADT Corporation customers who received such calls to their cell phones from 2013 to present. The premise of the plaintiff’s claim is that The ADT Corporation’s calls were telemarketing calls, which require a higher level of consent, and not transactional/business relationship calls because The ADT Corporation used the 2G transactional calls in an attempt to sell additional products and services. Plaintiff filed a motion for class certification. The ADT Corporation filed its opposition to class certification and further filed a motion for summary judgment in September 2017. The case settled for a nominal value in May 2018 prior to the Court ruling on the motions.

Shareholder Litigation

Five substantially similar shareholder class action lawsuits related to the January 2018 IPO of ADT Inc. common stock were filed in the Circuit Court of the Fifteenth Judicial Circuit in and for Palm Beach County, Florida in March, April, and May 2018. The actions are entitled Goldstrand Investments Inc. v. ADT Inc., Krebsbach v. ADT Inc., Katz v. ADT Inc., Sweet v. ADT Inc., and Lowinger v. ADT Inc. These cases have been consolidated for discovery and trial and are now entitled In re ADT Inc. Shareholder Litigation. The Lead Plaintiffs seek to represent a class of similarly situated shareholders and assert claims for alleged violations of the Securities Act of 1933, as amended (“Securities Act”). Plaintiffs allege that the ADT Inc. defendants violated the Securities Act because the registration statement and prospectus used to effectuate the IPO were false and misleading in that they allegedly misled investors with respect to litigation involving ADT Inc., ADT Inc.’s efforts to protect its intellectual property, and the competitive pressures faced by ADT Inc. Defendants moved to dismiss the consolidated complaint on October 23, 2018.

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Briefing on the motion is in progress. A similar shareholder class action lawsuit also related to the January 2018 IPO was filed in the United States District Court for the Southern District of Florida in May 2018. The action is entitled Perdomo v. ADT Inc. In September and October 2018, four substantially similar shareholder derivative complaints were also filed against various ADT Inc. officers, directors and controlling shareholders in the United States District Court for the Southern District of Florida. The actions are entitled, Velasco v. Whall; Myung v. Whall; Scheel v. Whall; and Bradel v. Whall. Plaintiffs allege breaches of fiduciary duties as directors, officers, and/or controlling shareholders of ADT Inc., unjust enrichment, and violations of the federal securities laws for alleged misrepresentations regarding competitive pressures in the marketplace, litigation involving ADT Inc. intellectual property, and certain financial and operational metrics. On November 1, 2018, the Velasco action was transferred to the judge presiding over the earlier filed Perdomo action.

California Independent Contractor Litigation

In August 2017, Jabra Shuheiber filed civil litigation in Marin County Superior Court on behalf of himself and two other individuals asserting wage and hour violations against the Company. The action is entitled Jabra Shuheiber v. ADT, LLC (Case Number CV 1702912, Superior Court, Marin County). Mr. Shuheiber was the owner/operator of a sub-contractor, Maximum Protection, Inc. (“MPI”), who employed the other two plaintiffs in the litigation. In August 2018, in response to the California Supreme Court’s decision in Dynamex Operations West, Inc. v. Superior Court of Los Angeles County, counsel for Mr. Shuheiber provided the Company with a proposed amended complaint that modified the wage and hour claims such that they were brought on a class basis. The proposed class is not clearly defined but appears to be two groups of individuals: 1) individual owners of sub-contractors who performed services for the sub-contractor; and 2) individuals with no ownership interest in a sub-contractor who were employed by the sub-contractor and provided services pursuant to a contract between the sub-contractor and the Company. The Company has not been served with the proposed amended complaint.

Income Tax Matters

On September 28, 2012, Johnson Controls International plc (as successor to Tyco International Ltd., “Tyco”) distributed to its public stockholders The ADT Corporation’s common stock (“Separation from Tyco”), and The ADT Corporation became an independent public company. In connection with the Separation from Tyco in September 2012, The ADT Corporation entered into the 2012 Tax Sharing Agreement that governs the rights and obligations of The ADT Corporation, Tyco, and Pentair Ltd. for certain pre-Separation from Tyco tax liabilities, including Tyco’s obligations under the 2007 Tax Sharing Agreement among Tyco, Covidien, now operating as a subsidiary of Medtronic, and TE Connectivity. The ADT Corporation is responsible for all of its own taxes that are not shared pursuant to the 2012 Tax Sharing Agreement’s sharing formulae. Tyco and Pentair Ltd. are likewise responsible for their tax liabilities that are not subject to the 2012 Tax Sharing Agreement’s sharing formulae. Tyco has the right to administer, control, and settle all U.S. income tax audits for the periods prior to and including the Separation from Tyco.

In accordance with the 2012 Tax Sharing Agreement, Tyco is responsible for the first $500 million of tax, interest, and penalties assessed against pre-2013 tax years including its 27% share of the tax, interest, and penalties assessed for periods prior to Tyco’s 2007 spin-off transaction. In addition to the Company’s share of cash taxes pursuant to the 2012 Tax Sharing Agreement, the Company’s net operating loss (“NOL”) and credit carryforwards may be significantly reduced or eliminated by audit adjustments to pre-2013 tax periods. NOL and credit carryforwards may be reduced prior to incurring any cash tax liability and will not be compensated for under the tax sharing agreement. The Company believes that its income tax reserves and the liabilities recorded for the 2012 Tax Sharing Agreement continue to be appropriate. The ultimate resolution of any matters challenged by the tax authorities is uncertain, and if the tax authorities were to prevail, it could have a material adverse impact on the Company’s financial position, results of operations, and cash flows, potentially including a significant reduction in or the elimination of the Company’s available NOL and credit carryforwards generated in pre-Separation from Tyco periods. Further, to the extent The ADT Corporation is responsible for any liability under the 2012 Tax Sharing Agreement, there could be a material impact on its financial position, results of operations, cash flows, or its effective tax rate in future reporting periods.

During the third quarter of 2017, the Company was notified by the IRS of its intent to disallow amortization deductions claimed on the Company’s $987 million trademark (value as of 2012) and the Notice of Proposed Adjustment was received from the IRS in April 2018. The Company strongly disagreed with the IRS’s position and maintained that the deductions claimed were appropriate.

During the third quarter of 2018, the Company successfully defended its originally filed tax return position, and the IRS notified the Company of its withdrawal of the proposed adjustments disallowing amortization deductions claimed on the Company’s trademark. The IRS also officially closed the fiscal year 2010-2012 audit cycle with no additional adjustments to The ADT Corporation. Accordingly, as of the third quarter of 2018, all tax years through 2012 have been audited and resolved with the IRS, with the only remaining item being the finalization of the Company’s carryforward attributes. The IRS and the Company are currently working to reconcile differences on the carry forward attributes.

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Other liabilities in the Company’s Condensed Consolidated Balance Sheets related to The ADT Corporation’s obligations under certain tax related agreements entered into in conjunction with the Separation from Tyco were not material as of September 30, 2018 and December 31, 2017. The maximum amount of potential future payments is not determinable as such payments relate to unknown conditions and future events that cannot be predicted.

9. Derivative Financial Instruments

The Company holds interest rate swap contracts with the objective of managing exposure to variability in interest rates on the Company’s debt. As of September 30, 2018, the Company had interest rate swap contracts outstanding with an aggregate notional amount of $3.5 billion, which consist of notional amounts of $1.5 billion and $1.0 billion entered into in June 2018 and August 2018, respectively, both maturing in April 2022, that are designated as cash flow hedges (“2018 Derivatives”), and notional amounts of $1.0 billion entered into in April 2017 maturing in April 2020, that are not designated as hedging instruments (“2017 Derivatives”).

The 2018 Derivatives consist of a series of LIBOR-based interest rate swap contracts. Changes in fair value of the 2018 Derivatives are recorded in accumulated other comprehensive loss in the Condensed Consolidated Balance Sheets and are reclassified into interest expense in the same period in which the related interest on the debt obligations affects earnings. As of September 30, 2018, the 2018 Derivatives were highly effective.

The impact to the condensed consolidated financial statements as a result of the 2018 Derivatives was not material. Further, amounts expected to be reclassified from accumulated other comprehensive loss into interest expense during the next twelve months is not material.

Changes in fair value of the 2017 Derivatives are reflected in interest expense, net in the Condensed Consolidated Statements of Operations, and were not material for the quarters and nine months ended September 30, 2018 and 2017.

10. Share-based Compensation

2016 Equity Incentive Plan Awards

In 2016, the Company approved the 2016 Equity Incentive Plan, which provides for the issuance of non-qualified stock options to various employees of the Company. The Company records share-based compensation expense on options subject to time-based vesting, and subsequent to the consummation of the IPO, on options subject to vesting based upon the achievement of certain investment return thresholds by Apollo. The Company does not expect to issue additional share-based compensation awards under the 2016 Equity Incentive Plan. For the quarters and nine months ended September 30, 2018 and 2017, share-based compensation expense for awards under the 2016 Equity Incentive Plan was not material.

Class B Unit Redemption

The Company records share-based compensation expense on certain Class B Unit awards granted to employees by Ultimate Parent (“Class B Units”). The Class B Units have two separate tranches, one of which is subject to time-based vesting over a five-year period (“Class B Unit Service Tranche”), and the other subject to vesting based upon the achievement of certain investment return thresholds by Apollo (“Class B Unit Performance Tranche”). Prior to the IPO, the Company recorded share-based compensation expense on the Class B Unit Service Tranche, whereas no share-based compensation expense was recorded on the Class B Unit Performance Tranche as the vesting of these awards was not deemed probable.

During the first quarter of 2018 and in connection with the IPO, each holder of Class B Units in Ultimate Parent had his or her entire Class B interest in Ultimate Parent redeemed for the number of shares of the Company’s common stock (“Distributed Shares”) that would have been distributed to such holder under the terms of Ultimate Parent’s operating agreement in a hypothetical liquidation on the date of the IPO at the initial public offering price (“Class B Unit Redemption”). All vesting conditions for the Distributed Shares remain the same as the vesting conditions that existed under the terms of the Class B Units. The Distributed Shares also have certain other restrictions pursuant to the terms and conditions of the Company’s Amended and Restated Management Investor Rights Agreement (“MIRA”). Furthermore, as part of the Class B Unit Redemption, each holder received both vested and unvested Distributed Shares in the same proportion as the holder’s vested and unvested Class B Units held immediately prior to the IPO. As a result of the Class B Unit Redemption, holders of Class B Units received a total of 20.6 million shares of the Company’s common stock (17.8 million of which were unvested at the time of redemption). Of the Distributed Shares issued upon the Class B Unit Redemption, 50% were subject to the vesting conditions that existed for the Class B Unit Service Tranche (“Distributed Shares Service Tranche”) and 50% were subject to the vesting conditions that existed for the Class B Unit Performance Tranche (“Distributed Shares Performance Tranche”). As discussed below, all remaining unvested shares in the Distributed Shares Service Tranche became fully vested in July 2018. As of September 30, 2018, there were 10.2 million unvested and outstanding shares in the Distributed Shares Performance Tranche.

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The Class B Unit Redemption resulted in a modification of the Class B Units. In connection with the modification, the Company utilized a Monte Carlo simulation to estimate the fair value of the Distributed Shares, as well as the derived service period for the Distributed Shares Performance Tranche. Significant assumptions included in the simulation were the risk-free interest rate and the expected volatility of the Company’s stock price. The Company selected a risk-free interest rate of 2.43%, which was based on a five-year U.S. Treasury with a zero-coupon rate. The Company also selected a stock price volatility of 30%, which was implied based upon an average of historical volatilities of publicly traded companies in industries similar to the Company, as the Company did not have sufficient history to use as a basis for actual stock price volatility. Additionally, because holders of unvested Distributed Shares are entitled to receive previously declared accrued dividends once the shares vest, a dividend yield assumption was not included in the simulation.

The Class B Unit Redemption resulted in weighted-average fair values of $14.00 and $12.97 for the Distributed Shares Service Tranche and Performance Tranche, respectively. The fair values also incorporate the estimated impact of post-vesting selling restrictions pursuant to the MIRA. During the first quarter of 2018, the Company began recording share-based compensation expense on the Distributed Shares Performance Tranche on a straight-line basis over the derived service period of approximately three years from the IPO date, as the vesting conditions were deemed probable following the consummation of the IPO. For the Distributed Shares Service Tranche, incremental compensation expense recorded as a result of the modification was not material. Additionally, the IPO triggered an acceleration of vesting of the unvested shares in the Distributed Shares Service Tranche, causing such Distributed Shares to become fully vested six months from the date of the IPO, which occurred in July 2018.

Share-based compensation expense associated with the Distributed Shares Service Tranche was $2 million and $28 million for the quarter and nine months ended September 30, 2018, respectively. Share-based compensation expense associated with the Distributed Shares Performance Tranche was $6 million and $29 million for the quarter and nine months ended September 30, 2018, respectively.

Top-up Options

In January 2018, the Company approved its 2018 Omnibus Incentive Plan (“2018 Omnibus Incentive Plan”), which became effective upon consummation of the IPO. Under the 2018 Omnibus Incentive Plan, and in connection with the Class B Unit Redemption, the Company granted 12.7 million options to holders of Class B Units (“Top-up Options”). The Top-up Options have an exercise price equal to the initial public offering price per share of the Company’s common stock and a contractual term of ten years from the grant date. Similar to the vesting conditions outlined above for the Distributed Shares, the Top-up Options contain a tranche subject to time-based vesting (“Top-up Options Service Tranche”) and a tranche subject to vesting based upon the achievement of certain investment return thresholds by Apollo (“Top-up Options Performance Tranche”). Recipients of the Top-up Options received both vested and unvested Top-up Options in the same proportion as the vested and unvested Class B Units held immediately prior to the IPO and Class B Unit Redemption. These vesting conditions are the same vesting conditions as those attributable to the Distributed Shares, including the condition that accelerated vesting of the unvested options in the Top-up Options Service Tranche, causing such options to become fully vested six months from the date of the IPO, which occurred in July 2018. Any shares of the Company’s common stock acquired upon exercise of the Top-up Options will be subject to the terms of the MIRA.

The Company used a Monte Carlo simulation to estimate the fair value of the Top-up Options, as well as the derived service period for the Top-up Options Performance Tranche. Significant assumptions included in the simulation were the risk-free interest rate, the expected volatility, and the expected dividend yield. The Company selected a risk-free interest rate of 2.43%, which was based on a five-year U.S. Treasury with a zero-coupon rate. The Company selected a stock price volatility of 30%, which was implied based upon an average of historical volatilities of publicly traded companies in industries similar to the Company, as the Company did not have sufficient history to use as a basis for actual stock price volatility. The Company also assumed a 1% dividend yield. The expected average exercise term was derived based on an average of the outcomes of various scenarios performed under the Monte Carlo simulation.

For the nine months ended September 30, 2018, the weighted-average grant date fair values of the Top-up Options Service Tranche and Top-up Options Performance Tranche were $5.02 and $5.04, respectively. The fair values also incorporate the estimated impact of post-vesting selling restrictions pursuant to the MIRA. In July 2018, all remaining unvested options in the Top-up Options Service Tranche became fully vested. As of September 30, 2018, there were 6.3 million unvested and outstanding options in the Top-up Options Performance Tranche.

The Company recorded share-based compensation expense associated with the Top-up Options Service Tranche on a straight-line basis over the requisite service period of six months from the IPO date. Share-based compensation expense associated with the Top-up Options Service Tranche was $2 million and $32 million for the quarter and nine months ended September 30, 2018, respectively.

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The Company records share-based compensation expense associated with the Top-up Options Performance Tranche on a straight-line basis over the derived service period of approximately three years from the IPO date. Share-based compensation expense associated with the Top-up Options Performance Tranche was $2 million and $7 million for the quarter and nine months ended September 30, 2018, respectively.

Other 2018 Share-Based Compensation Awards

During the first quarter of 2018, in connection with the IPO, the Company granted 4.0 million options (“2018 Options”) and 1.1 million restricted stock units (“RSUs”) (“2018 RSUs”) under the 2018 Omnibus Incentive Plan. The 2018 Options and 2018 RSUs will cliff vest over a three-year period. For the 2018 Options, the contractual term is ten years. Other options and RSUs granted during the quarter and nine months ended September 30, 2018 were not material.

The Company used a Black-Scholes pricing model to estimate the fair value of the 2018 Options granted in the first quarter of 2018. Significant assumptions included in the model were the risk-free interest rate, the expected volatility, the expected dividend yield, and the expected exercise term. The Company selected a risk-free interest rate of 2.52%, which was based on a six-year U.S. Treasury with a zero-coupon rate. The Company selected a stock price volatility of 30%, which was implied based upon an average of historical volatilities of publicly traded companies in industries similar to the Company, as the Company did not have sufficient history to use as a basis for actual stock price volatility. The Company also assumed a 1% dividend yield. The expected average exercise term of 6.5 years was calculated using the simplified method, as the Company did not have sufficient historical exercise data to provide a reasonable basis to estimate future exercise patterns.

The grant date fair values of the 2018 Options and 2018 RSUs granted in connection with the IPO were $4.35 and $14.00, respectively.

The Company records share-based compensation expense associated with the 2018 Options and 2018 RSUs on a straight-line basis over the requisite service period. For the quarter and nine months ended September 30, 2018, share-based compensation expense associated with the 2018 Options and 2018 RSUs was not material. As of September 30, 2018, the number of 2018 Options and 2018 RSUs granted in connection with the IPO that were unvested and outstanding were 3.8 million and 1.0 million, respectively.

For all share-based compensation awards, the Company recognizes forfeitures as they occur. Share-based compensation expense is included in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations. For the quarter and nine months ended September 30, 2018, share-based compensation expense on all awards was $18 million and $113 million, respectively. For the quarter and nine months ended September 30, 2017, share-based compensation expense on all awards was $4 million and $8 million, respectively.

11. Equity

Stock Split and Initial Public Offering

Refer to Note 1 “Basis of Presentation and Summary of Significant Accounting Policies” for a discussion regarding the Stock Split and the Company’s completion of an IPO in January 2018.

Common Stock Dividends

During the nine months ended September 30, 2018, the Company’s board of directors declared the following cash dividends on common stock:

Declared Date	Dividend per Share	Record Date	Payment Date
March 15, 2018	$0.035	March 26, 2018	April 5, 2018
May 9, 2018	$0.035	June 25, 2018	July 10, 2018
August 8, 2018	$0.035	September 18, 2018	October 2, 2018

During the nine months ended September 30, 2017, the Company paid dividends in an aggregate amount of $750 million in February and April 2017 to the Company’s equity holders and Ultimate Parent, which primarily included distributions to the Company’s Sponsor (“Special Dividend”).

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Accumulated Other Comprehensive Loss

During the quarters and nine months ended September 30, 2018 and 2017, the Company did not record any material reclassifications out of accumulated other comprehensive loss.

Other

As discussed in Note 1 “Basis of Presentation and Summary of Significant Accounting Policies,” the opening balance of stockholders’ equity for the nine months ended September 30, 2018 includes $34 million, net of tax, attributable to the cumulative effect of the adoption of the new revenue recognition standard.

12. Net Loss per Share

Basic net loss per share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted net loss per share is calculated by dividing net loss available to common stockholders by the diluted weighted average number of common shares outstanding for the period. Diluted net loss per share would reflect the potential dilutive effect of common stock equivalents outstanding for the period determined using the treasury-stock method. For purposes of the diluted net loss per share calculation, all awards that potentially could be dilutive were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive, therefore, basic net loss per share is equal to diluted net loss per share for each period presented.

The following table includes the computations of basic and diluted net loss per share for the periods presented.

	For the Quarters Ended						For the Nine Months Ended
(in thousands, except per share amounts)	September 30, 2018			September 30, 2017			September 30, 2018			September 30, 2017
Numerator:
Net loss	$	(235,544	)	$	(62,030	)	$	(459,686	)	$	(295,561	)
Denominator:
Weighted-average number of shares outstanding, basic and diluted	755,277			641,088			744,720			641,061
Net loss per share:
Basic and diluted	$	(0.31	)	$	(0.10	)	$	(0.62	)	$	(0.46	)

13. Related Party Transactions

Management Consulting Agreement

In May 2016, in connection with the acquisition of The ADT Corporation, Apollo Management Holdings, L.P., an affiliate of the Company’s Sponsor (“Management Service Provider”) entered into a management consulting agreement with the Company (“Management Consulting Agreement”) relating to the provision of certain management consulting and advisory services to the Company following this acquisition. The Management Consulting Agreement terminated in accordance with its terms in January 2018 upon consummation of the IPO.

Prior to the termination of the Management Consulting Agreement, the Company paid approximately $1 million to the Management Service Provider during the nine months ended September 30, 2018. During the quarter and nine months ended September 30, 2017, fees under the Management Consulting Agreement were $5 million and $15 million, respectively. These fees are included in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations.

Koch Preferred Securities

The Company identified the Koch Investor as a related party. Refer to Note 6 “Mandatorily Redeemable Preferred Securities” for further discussion of transactions related to the Koch Preferred Securities.

Apollo Global Securities, LLC

An affiliate of Apollo, Apollo Global Securities, LLC (“AGS”), served as an underwriter in the Company’s IPO. As part of the IPO, AGS agreed to purchase, and the Company agreed to sell, 4,200,000 shares of common stock. The Company paid $2 million in commissions to AGS in connection with its role as an underwriter in the IPO. The net amount of this transaction is

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included in common stock issued for initial public offering proceeds in the Condensed Consolidated Statement of Stockholders’ Equity for the nine months ended September 30, 2018.

During the nine months ended September 30, 2017, the Company paid approximately $1 million to AGS related to amendments and restatements to the Company’s first lien credit facilities. These expenses are included in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations.

Other Transactions

During the nine months ended September 30, 2017, the Company paid $750 million of the Special Dividend to the Company’s equity holders and Ultimate Parent, which primarily included distributions to its Sponsor. In connection with the Special Dividend, the Company also paid $45 million of structuring fees to the Koch Investor, which is included in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations for the nine months ended September 30, 2017.

14. Subsequent Events

Common Stock Dividend

On November 7, 2018, the Company’s board of directors declared a cash dividend of $0.035 per share to common stockholders of record as of December 14, 2018. This dividend will be paid on January 4, 2019.

Acquisition of Red Hawk Fire & Security

On October 24, 2018, the Company entered into a Purchase Agreement and Plan of Merger (“Merger Agreement”) to acquire Red Hawk Fire & Security (“Red Hawk”), a nationwide leader in commercial fire, life safety, and security services, for total consideration of approximately $317.5 million in cash. Under the terms of the Merger Agreement, Red Hawk will become a wholly-owned indirect subsidiary of the Company (“Merger”). The consummation of the Merger is subject to customary closing conditions and is expected to occur in the fourth quarter of 2018. The Company will account for this transaction as a business combination using the acquisition method of accounting.

In connection with the Merger, the Company has obtained debt financing commitments for up to an additional $317.5 million under the First Lien Credit Agreement.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Unless otherwise indicated or the context otherwise requires, references in this quarterly report on Form 10-Q (“Quarterly Report”) to (i) “we,” “our,” “us,” “ADT,” and the “Company” refer to ADT Inc., a Delaware corporation and each of its consolidated subsidiaries, (ii) “Ultimate Parent” refers to Prime Security Services TopCo Parent, LP, our direct parent company, (iii) our “Sponsor” refers to certain investment funds directly or indirectly managed by Apollo Global Management, LLC, its subsidiaries, and its affiliates (“Apollo”).

INTRODUCTION

The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements, the related notes thereto included elsewhere in this Quarterly Report, as well as our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2017 (“2017 Annual Report”), which was filed with the United States Securities and Exchange Commission (“SEC”) on March 15, 2018, to enhance the understanding of our financial condition, changes in financial condition, and results of operations. The following discussion and analysis contains forward-looking statements about our business, operations, and financial performance based on current plans and estimates that involve risks, uncertainties, and assumptions. Actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause such differences are discussed in the sections of this Quarterly Report titled “Cautionary Statements Regarding Forward-Looking Statements” and “Item 1A. Risk Factors.”

OVERVIEW

We are the leading provider of monitored security, interactive home and business automation, and related monitoring services in the United States (or “U.S.”) and Canada. We offer our residential, commercial, and multi-site customers a comprehensive set of burglary, video, access control, fire and smoke alarm, and medical alert solutions. Our core professionally monitored security offering is complemented by a broad set of innovative products and services, including interactive home and business automation solutions that are designed to control access, react to movement, and sense carbon monoxide, flooding, and changes in temperature or other environmental conditions, as well as address personal emergencies, such as injuries, medical emergencies, or incapacitation. These products and services include interactive technologies to enhance our monitored solutions and to allow our customers to remotely manage their residential and commercial environments by adding increased automation through video, access control, and other smart-building functionality. Through our interactive offerings, customers can use their smart phones, tablets, and laptops to arm and disarm their security systems, adjust lighting or thermostat levels, view real-time video of their premises, and program customizable schedules for the management of a range of smart home products.

In addition, we offer professional monitoring of third-party devices by enabling other companies to integrate solutions into our monitoring and billing platform. This allows us to provide monitoring solutions to customers who do not currently have an installed ADT security system or interactive automation platform.

As of September 30, 2018, we serve approximately 7.2 million customers, excluding contracts monitored but not owned (customers who outsource their monitoring to ADT). We are one of the largest full-service companies with a national footprint providing both residential and commercial monitored security. We deliver an integrated customer experience by maintaining the industry’s largest sales, installation, and service field workforce, as well as a 24/7 professional monitoring network.

BASIS OF PRESENTATION

All financial information presented in this section has been prepared in U.S. dollars in accordance with generally accepted accounting principles in the United States of America (“GAAP”).

We report financial and operating information in one segment, which is also our reportable segment.

FACTORS AFFECTING OPERATING RESULTS

Our subscriber-based business requires significant upfront investment to generate new customers, which in turn provides predictable contractual recurring revenue generated from our monitoring fees and additional services. We focus on the following key drivers of our business with the intent of optimizing returns on customer acquisition expenditures and cash flow generation: best-in-class customer service; increased customer retention; disciplined, high-quality customer additions; efficient customer acquisition; and reduced costs incurred to provide ongoing services to customers.

Our ability to add new subscribers depends on the overall demand for our products and solutions, which is driven by a number of external factors. The overall economic condition in the geographies in which we operate can impact our ability to

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attract new customers and grow our business in all customer channels. Growth in our residential customer base can be influenced by the overall state of the housing market. Growth in our commercial and multi-site customer base can be influenced by the rate at which new businesses begin operating or existing businesses grow. The demand for our products and solutions is also impacted by the perceived threat of crime, as well as the quality of the service of our competitors.

The monthly fees that we generate from any individual customer depend primarily on the level of service we provide to the customer. We offer a wide range of services at various price points from basic burglar alarm monitoring to our full suite of interactive services. Our ability to increase monthly fees at the individual customer level depends on a number of factors, including our ability to effectively introduce and market additional features and services that increase the value of our offerings to customers, which we believe drives customers to purchase higher levels of service and supports our ability to make periodic adjustments to pricing.

Attrition has a direct impact on the number of customers we monitor and service, as well as our financial results, including revenue, operating income, and cash flows. A portion of our customer base can be expected to cancel its service every year. Customers may choose not to renew or may terminate their contracts for a variety of reasons, including, but not limited to, relocation, cost, loss to competition, or service issues.

Hurricanes

We evaluate the potential financial and business impacts that hurricanes or other natural disasters may have on our business and operations. In the second half of 2017, there were three hurricanes impacting areas in which we operate that resulted in power outages and service disruptions to certain of our customers. As of September 30, 2018, we determined that the financial impact from these hurricanes, as well as others that occurred during 2018, was not material.

Public Company Costs

As a result of our initial public offering (“IPO”), we incur additional legal and accounting fees, board compensation, and other expenses that we did not previously incur prior to becoming a public company, including costs associated with SEC reporting and corporate governance requirements. These requirements include compliance with the Sarbanes-Oxley Act of 2002, as amended, as well as other rules implemented by the SEC and the national securities exchanges. Our results following our IPO reflect the impact of these expenses.

SIGNIFICANT EVENTS

Initial Public Offering

In January 2018, we completed our IPO in which we issued and sold 105,000,000 shares of common stock at an initial public offering price of $14.00 per share. Net proceeds from the IPO were $1,406 million, after deducting underwriting discounts, commissions, and offering expenses.

In February 2018, we used approximately $649 million of the net proceeds from the IPO to voluntarily redeem $594 million aggregate principal amount of 9.250% Second-Priority Senior Secured Notes due 2023 (“Prime Notes”) and pay the related call premium. The aggregate principal amount of Prime Notes outstanding after the repayment was $2,546 million. Refer to Note 5 “Debt” to the condensed consolidated financial statements for further discussion.

In connection with the IPO, we deposited $750 million of the net proceeds from the IPO into a segregated account (“Segregated Account”) for the purpose of redeeming the 750,000 shares of Series A $0.01 par value preferred securities (“Koch Securities”) at a future date. On July 2, 2018, we redeemed the Koch Preferred Securities in full using funds in the Segregated Account along with cash on hand immediately prior to redemption (“Koch Redemption”). We paid total consideration of approximately $949 million and recognized a loss on extinguishment of debt of $213 million. Refer to Note 6 “Mandatorily Redeemable Preferred Securities” to the condensed consolidated financial statements for further discussion.

During the first quarter of 2018 and in connection with the IPO, we redeemed Class B Units in Ultimate Parent in full for the number of shares of our common stock (“Distributed Shares”) that would have been distributed to such holder under the terms of Ultimate Parent’s operating agreement in a hypothetical liquidation on the date of the IPO at the initial public offering price (“Class B Unit Redemption”), which resulted in a modification of both the shares subject to time-based vesting (“Distributed Shares Service Tranche”) and shares subject to vesting based upon the achievement of certain investment return thresholds by Apollo (“Distributed Shares Performance Tranche”). The modification of the Distributed Shares Performance Tranche resulted in a significant increase in fair value, whereas the impact of the modification on the Distributed Shares Service Tranche was not material. Additionally, upon consummation of the IPO, we approved our 2018 Omnibus Incentive Plan (“2018 Omnibus Incentive

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Plan”). Under the 2018 Omnibus Incentive Plan, and in connection with the Class B Unit Redemption, we also granted options to holders of Class B Units (“Top-up Options”). The Class B Unit Redemption and Top-up Options resulted in the increase in share-based compensation expense during the quarter and nine months ended September 30, 2018. Refer to Note 10 “Share-based Compensation” to the condensed consolidated financial statements for further discussion.

KEY PERFORMANCE INDICATORS

In evaluating our financial results, we utilize the following key performance indicators.

Recurring Monthly Revenue (“RMR”). RMR is generated by contractual monthly recurring fees for monitoring and other recurring services provided to our customers, including contracts monitored but not owned. Our computation of RMR may not be comparable to other similarly titled measures reported by other companies. We believe the presentation of RMR is useful because it measures the volume of revenue under contract at a given point in time.

Gross Customer Revenue Attrition. Gross customer revenue attrition is defined as the recurring revenue (RMR) lost as a result of customer attrition, net of dealer charge-backs and reinstated customers, excluding contracts monitored but not owned. Customer sites are considered canceled when all services are terminated. Dealer charge-backs represent customer cancellations charged back to the dealers because the customer canceled service during the charge-back period, generally twelve to fifteen months.

Gross customer revenue attrition is calculated on a trailing twelve-month basis, the numerator of which is the annualized recurring revenue lost during the period due to attrition, net of dealer charge-backs and reinstated customers, and the denominator of which is total annualized recurring revenue based on an average of recurring revenue under contract at the beginning of each month during the period.

Adjusted EBITDA. Adjusted EBITDA is a non-GAAP measure that we believe is useful to investors to measure the operational strength and performance of our business. Our definition of Adjusted EBITDA, a reconciliation of Adjusted EBITDA to net income (loss) (the most comparable GAAP measure), and additional information, including a description of the limitations relating to the use of Adjusted EBITDA, are provided under “—Non-GAAP Measures.”

Free Cash Flow. Free Cash Flow is a non-GAAP measure that our management employs to measure cash that is available to repay debt, make other investments, and pay dividends. Our definition of Free Cash Flow, a reconciliation of Free Cash Flow to net cash provided by operating activities (the most comparable GAAP measure), and additional information, including a description of the limitations relating to the use of Free Cash Flow, are provided under “—Non-GAAP Measures.”

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RESULTS OF OPERATIONS

Quarter Ended September 30, 2018 Compared to Quarter Ended September 30, 2017

The following table sets forth our condensed consolidated results of operations and key performance indicators for the periods presented.

	For the Quarters Ended
(in thousands, except as otherwise indicated)	September 30, 2018			September 30, 2017
Results of Operations:
Monitoring and related services	$	1,029,399		$	1,012,292
Installation and other	118,917			70,670
Total revenue	1,148,316			1,082,962
Cost of revenue (exclusive of depreciation and amortization shown separately below)	263,286			224,140
Selling, general and administrative expenses	295,119			284,137
Depreciation and intangible asset amortization	474,772			467,929
Merger, restructuring, integration, and other	(6,708		)	14,505
Operating income	121,847			92,251
Interest expense, net	(152,405		)	(184,369		)
Loss on extinguishment of debt	(213,239		)	—
Other income	552			22,960
Loss before income taxes	(243,245		)	(69,158		)
Income tax benefit	7,701			7,128
Net loss	$	(235,544	)	$	(62,030	)
Key Performance Indicators:(1)
RMR	$	340,278		$	333,814
Gross customer revenue attrition (percent)	13.4		%	13.8		%
Adjusted EBITDA(2)	$	609,763		$	594,453

_______________________

(1) Refer to the “—Key Performance Indicators” section for the definitions of these key performance indicators.

(2) Adjusted EBITDA is a non-GAAP measure. Refer to the “—Non-GAAP Measures” section for the definition of this term and reconciliation to the most comparable GAAP measure.

Total Revenue

Monitoring and related services revenue increased by $17 million for the quarter ended September 30, 2018 as compared to 2017. This increase was primarily attributable to an increase in contractual monthly recurring fees for monitoring and other recurring services, which resulted from the addition of new customers and improvements in average pricing, partially offset by customer attrition. The improvement in average pricing was driven by the addition of new customers at higher rates, largely due to new subscribers generally selecting higher priced services as compared to our existing customers, as well as price escalations on our existing customer base. These factors also were the primary driver for an increase in RMR to $340 million as of September 30, 2018 from $334 million as of September 30, 2017. Gross customer revenue attrition improved to 13.4% as of September 30, 2018 from 13.8% as of September 30, 2017 as a result of lower voluntary disconnects.

Installation and other revenue increased by $48 million. This increase was primarily due to $40 million of revenue from security equipment sold outright to customers, of which approximately $26 million related to revenue associated with acquisitions. The remaining increase was due to additional amortization of deferred installation revenue during 2018.

Cost of Revenue

Cost of revenue increased by $39 million for the quarter ended September 30, 2018 as compared to 2017. The majority of the increase in cost of revenue was attributable to installation costs associated with a higher volume of sales where security-related equipment is sold outright to customers, including the impact from acquisitions.

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Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by $11 million for the quarter ended September 30, 2018 as compared to 2017. The increase primarily relates to an increase in share-based compensation expense associated with our equity compensation awards, which were impacted by the completion of our IPO.

Depreciation and Intangible Asset Amortization

Depreciation and intangible asset amortization expense increased by $7 million for the quarter ended September 30, 2018 as compared to 2017. This increase was primarily attributable to $25 million associated with the amortization of customer contracts acquired through our network of authorized dealers (“ADT Authorized Dealer Program”), partially offset by a decrease in amortization expense of $21 million associated with the Protection One trade name, which became fully amortized in June 2018.

Merger, Restructuring, Integration, and Other

Merger, restructuring, integration, and other decreased by $21 million for the quarter ended September 30, 2018 as compared to 2017. This decrease was primarily due to (i) a gain on fair value remeasurement of approximately $11 million on a strategic investment in 2018 and (ii) an impairment charge of approximately $9 million on a strategic investment in 2017.

Interest Expense, Net

Net interest expense decreased by $32 million for the quarter ended September 30, 2018 as compared to 2017. Net interest expense is primarily comprised of interest expense on our long-term debt. The decrease in interest expense was primarily driven by the Koch Redemption in July 2018, as well as a reduction in principal associated with the $594 million aggregate principal redemption of the Prime Notes using a portion of the net proceeds from the IPO.

Loss on Extinguishment of Debt

For the quarter ended September 30, 2018, loss on extinguishment of debt is associated with the redemption of the Koch Preferred Securities on July 2, 2018, which primarily relates to the payment of the redemption premium and tax reimbursements, as well as the write-off of the unamortized discount and deferred financing costs.

Other Income

For the quarter ended September 30, 2018, other income was not material.

For the quarter ended September 30, 2017, other income primarily includes approximately $14 million of foreign currency gains related to the translation of monetary assets and liabilities that are denominated in Canadian dollars due to intercompany loans. During the first quarter of 2018, we designated certain of these intercompany loans to be of a long-term-investment nature and began recognizing the related foreign currency gains and losses in accumulated other comprehensive loss in the Condensed Consolidated Balance Sheet.

Income Tax Benefit

Income tax benefit for the quarter ended September 30, 2018 was $8 million, resulting in an effective tax rate for the period of 3.2%. The effective tax rate reflects the reduced federal income tax rate of 21.0% as a result of Tax Reform, an 11.2% unfavorable impact of permanent non-deductible expenses primarily associated with the Koch Preferred Securities, a 5.6% unfavorable impact from an increase in the Company’s unrecognized tax benefits, and a 4.9% unfavorable impact from state legislative changes.

Income tax benefit for the quarter ended September 30, 2017 was $7 million, resulting in an effective tax rate for the period of 10.3%. The effective tax rate primarily reflects the impact of an increase in our unrecognized tax benefits related to income tax positions primarily associated with prior years, including pre-Separation tax years, the impact of legislative changes, an increase in our valuation allowance for certain deferred tax assets, and the impact of permanent non-deductible expenses.

The effective tax rates for the quarters ended September 30, 2018 and 2017 reflect the tax impact of permanent tax adjustments, state tax expense, changes in tax laws, and non-U.S. net earnings. The effective tax rate can vary from period to period due to permanent tax adjustments, discrete items such as the settlement of income tax audits and changes in tax laws, recurring factors such as changes in the overall effective state tax rate, as well as fluctuations in pre-tax income or loss. Discrete items and permanent tax adjustments will have a greater impact on the effective tax rate when pre-tax income is lower. Refer to Note 7 “Income Taxes” to the condensed consolidated financial statements for further discussion.

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In connection with the 2017 Tax Cuts and Jobs Act (“Tax Reform”), the SEC issued Staff Accounting Bulletin No. 118, which allows companies to record provisional estimates of the effects of the legislative change, and a one-year measurement period to finalize the accounting of those effects. During the quarter ended September 30, 2018, we did not record any significant measurement period adjustments to the provisional amounts recorded in the 2017 financial statements. We expect to complete the accounting for the impact of Tax Reform by the end of 2018.

Nine Months Ended September 30, 2018 Compared to Nine Months Ended September 30, 2017

The following table sets forth our condensed consolidated results of operations, summary cash flow data, and key performance indicators for the periods presented.

	For the Nine Months Ended
(in thousands, except as otherwise indicated)	September 30, 2018			September 30, 2017
Results of Operations:
Monitoring and related services	$	3,069,817		$	3,017,026
Installation and other	326,406			192,944
Total revenue	3,396,223			3,209,970
Cost of revenue (exclusive of depreciation and amortization shown separately below)	757,905			658,095
Selling, general and administrative expenses	922,627			923,048
Depreciation and intangible asset amortization	1,446,768			1,387,245
Merger, restructuring, integration, and other	1,770			54,170
Operating income	267,153			187,412
Interest expense, net	(501,217		)	(553,529		)
Loss on extinguishment of debt	(274,836		)	(4,331		)
Other income	29,374			35,965
Loss before income taxes	(479,526		)	(334,483		)
Income tax benefit	19,840			38,922
Net loss	$	(459,686	)	$	(295,561	)
Summary Cash Flow Data:
Net cash provided by operating activities	$	1,405,964		$	1,262,340
Net cash used in investing activities	$	(1,084,020	)	$	(1,049,170	)
Net cash used in financing activities	$	(187,483	)	$	(129,586	)
Key Performance Indicators:(1)
RMR	$	340,278		$	333,814
Gross customer revenue attrition (percent)	13.4		%	13.8		%
Adjusted EBITDA(2)	$	1,839,917		$	1,754,383
Free Cash Flow(2)	$	356,867		$	228,431

_______________________

(1) Refer to the “—Key Performance Indicators” section for the definitions of these key performance indicators.

(2) Adjusted EBITDA and Free Cash Flow 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.

Total Revenue

Monitoring and related services revenue increased by $53 million for the nine months ended September 30, 2018 as compared to 2017. This increase was primarily attributable to an increase in contractual monthly recurring fees for monitoring and other recurring services, which resulted from the addition of new customers and improvements in average pricing, partially offset by customer attrition. The improvement in average pricing was driven by the addition of new customers at higher rates, largely due to new subscribers generally selecting higher priced services as compared to our existing customers, as well as price escalations on our existing customer base. These factors also were the primary driver for an increase in RMR to $340 million as of September 30, 2018 from $334 million as of September 30, 2017. Gross customer revenue attrition improved to 13.4% as of September 30, 2018 from 13.8% as of September 30, 2017 as a result of lower voluntary disconnects.

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Installation and other revenue increased by $133 million. This increase was primarily due to $109 million related to revenue from security equipment sold outright to customers, of which approximately $64 million related to revenue associated with acquisitions. The remaining increase was due to additional amortization of deferred installation revenue during 2018.

Cost of Revenue

Cost of revenue increased by $100 million for the nine months ended September 30, 2018 as compared to 2017. The majority of the increase in cost of revenue was attributable to installation costs associated with a higher volume of sales where security-related equipment is sold outright to customers, including the impact from acquisitions.

Selling, General and Administrative Expenses

Selling, general and administrative expenses remained relatively flat for the nine months ended September 30, 2018 as compared to 2017. Selling, general and administrative expenses for 2018 as compared to 2017 includes an increase of $104 million associated with our equity compensation awards, which were impacted by the completion of our IPO, primarily offset by decreases in (i) financing and consent fees of $64 million associated with fees incurred in 2017 in connection with the dividend paid to our equity holders and Ultimate Parent that primarily included distributions to our Sponsor (“Special Dividend”), amendments and restatements to our first lien credit facilities (“2017 First Lien Credit Facilities Amendments”), and the incremental first lien term loan facility in an aggregate principal amount of $800 million (“2017 Incremental Term B-1 Loan”); (ii) general and administrative expenses of $23 million mostly due to recoveries from legal settlements during the nine months ended September 30, 2018; and (iii) fees of $14 million under a management consulting agreement, which was terminated upon consummation of the IPO.

Depreciation and Intangible Asset Amortization

Depreciation and intangible asset amortization expense increased by $60 million for the nine months ended September 30, 2018 as compared to 2017. This increase was primarily attributable to $76 million associated with the amortization of customer contracts acquired under the ADT Authorized Dealer Program, partially offset by a decrease in amortization expense of $21 million associated with the Protection One trade name, which became fully amortized in June 2018.

Merger, Restructuring, Integration, and Other

Merger, restructuring, integration, and other decreased by $52 million for the nine months ended September 30, 2018 as compared to 2017. This decrease was primarily due to a $16 million decrease in charges related to our restructuring efforts associated with the acquisition of The ADT Security Corporation (previously named The ADT Corporation) (“The ADT Corporation”) in May 2016. In addition, merger, restructuring, integration, and other includes (i) a gain on fair value remeasurement of approximately $11 million on a strategic investment in 2018 and (ii) impairment charges of approximately $18 million on strategic investments in 2017.

Interest Expense, Net

Net interest expense decreased by $52 million for the nine months ended September 30, 2018 as compared to 2017. Net interest expense is primarily comprised of interest expense on our long-term debt. The decrease in interest expense was primarily driven by a reduction in principal associated with the $594 million aggregate principal redemption of the Prime Notes using a portion of the net proceeds from the IPO, as well as the Koch Redemption in July 2018.

Loss on Extinguishment of Debt

For the nine months ended September 30, 2018, loss on extinguishment of debt includes approximately $213 million associated with the redemption of the Koch Preferred Securities on July 2, 2018 primarily related to the payment of the redemption premium and tax reimbursements, as well as the write-off of the unamortized discount and deferred financing costs. Loss on extinguishment of debt for the nine months ended September 30, 2018 also includes approximately $62 million associated with the partial redemption of the Prime Notes in February 2018 primarily related to the payment of the call premium, as well as the write-off of a portion of the unamortized deferred financing costs.

Other Income

For the nine months ended September 30, 2018, other income primarily includes approximately $22 million of licensing fees, as well as a gain of $7.5 million from the sale of equity in a third party that we received as part of a settlement.

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Refer to Note 1 “Basis of Presentation and Summary of Significant Accounting Policies” to the condensed consolidated financial statements for further discussion.

For the nine months ended September 30, 2017, other income primarily includes $27 million of foreign currency gains related to the translation of monetary assets and liabilities that are denominated in Canadian dollars due to intercompany loans. During the first quarter of 2018, we designated certain of these intercompany loans to be of a long-term-investment nature and began recognizing the related foreign currency gains and losses in accumulated other comprehensive loss in the Condensed Consolidated Balance Sheet.

Income Tax Benefit

Income tax benefit for the nine months ended September 30, 2018 was $20 million, resulting in an effective tax rate for the period of 4.1%. The effective tax rate reflects the reduced federal income tax rate of 21.0% as a result of Tax Reform, an 11.6% unfavorable impact from permanent non-deductible expenses primarily associated with the Koch Preferred Securities, a 7.3% unfavorable impact from future non-deductible share-based compensation, and a 4.2% unfavorable impact from state legislative changes, offset by a 5.6% favorable impact of tax adjustments related to prior year state returns filed in the first quarter of 2018.

Income tax benefit for the nine months ended September 30, 2017 was $39 million, resulting in an effective tax rate for the period of 11.6%. The effective tax rate primarily reflects the impact of an increase in our unrecognized tax benefits related to income tax positions primarily associated with prior years, including pre-Separation tax years, the impact of legislative changes, an increase in our valuation allowance for certain deferred tax assets, and the impact of permanent non-deductible expenses.

The effective tax rates for the nine months ended September 30, 2018 and 2017 reflect the tax impact of permanent tax adjustments, state tax expense, changes in tax laws, and non-U.S. net earnings. The effective tax rate can vary from period to period due to permanent tax adjustments, discrete items such as the settlement of income tax audits and changes in tax laws, recurring factors such as changes in the overall effective state tax rate, as well as fluctuations in pre-tax income or loss. Discrete items and permanent tax adjustments will have a greater impact on the effective tax rate when pre-tax income is lower. Refer to Note 7 “Income Taxes” to the condensed consolidated financial statements for further discussion.

As discussed above, during the nine months ended September 30, 2018, we did not record any significant measurement period adjustments to the provisional amounts related to Tax Reform recorded in the 2017 financial statements.

NON-GAAP MEASURES

To provide investors with additional information in connection with our results as determined by GAAP, we disclose Adjusted EBITDA and Free Cash Flow as non-GAAP measures, which management believes provide useful information to investors. 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. We use Adjusted EBITDA to measure the operational strength and performance of our business. We use Free Cash Flow as an additional measure of our ability to repay debt, make other investments, and pay dividends.

Adjusted EBITDA

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) purchase accounting adjustments under GAAP, (vii) merger, restructuring, integration, and other, (viii) financing and consent fees, (ix) foreign currency gains/losses, (x) losses on extinguishment of debt, (xi) radio conversion costs, (xii) management fees and other charges, and (xiii) other non-cash items.

We believe that the presentation of Adjusted EBITDA is appropriate to provide additional information to investors about certain non-cash items and about unusual items that we do not expect to continue at the same level in the future, as well as other items. 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.

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 as calculated in accordance with GAAP.

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Free Cash Flow

We define Free Cash Flow as cash 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 from operating activities because they represent long-term investments that are required for normal business activities. As a result, subject to the limitations described below, Free Cash Flow is a useful measure of our cash available to repay debt, make other investments, and pay dividends.

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 flow results according to GAAP.

Adjusted EBITDA

The table below reconciles Adjusted EBITDA to net loss for the periods presented.

	For the Quarters Ended						For the Nine Months Ended
(in thousands)	September 30, 2018			September 30, 2017			September 30, 2018			September 30, 2017
Net loss	$	(235,544	)	$	(62,030	)	$	(459,686	)	$	(295,561	)
Interest expense, net	152,405			184,369			501,217			553,529
Income tax benefit(1)	(7,701		)	(7,128		)	(19,840		)	(38,922		)
Depreciation and intangible asset amortization	474,772			467,929			1,446,768			1,387,245
Merger, restructuring, integration, and other(2)	(6,708		)	14,505			1,770			54,170
Financing and consent fees(3)	—			—			—			63,593
Foreign currency (gains)/losses(4)	(622		)	(14,116		)	1,117			(26,773		)
Loss on extinguishment of debt(5)	213,239			—			274,836			4,331
Other non-cash items(6)	414			(3,672		)	988			10,122
Radio conversion costs(7)	1,725			3,006			4,751			9,597
Amortization of deferred subscriber acquisition costs(8)	15,724			13,849			42,876			35,457
Amortization of deferred subscriber acquisition revenue(9)	(20,826		)	(12,824		)	(56,381		)	(31,470		)
Share-based compensation expense(10)	17,803			3,609			112,905			8,498
Management fees and other charges(11)	5,082			6,956			(11,404		)	20,567
Adjusted EBITDA	$	609,763		$	594,453		$	1,839,917		$	1,754,383

___________________

(1) For 2018, reflects the impact of Tax Reform. Refer to Note 7 “Income Taxes” to the condensed consolidated financial statements for further discussion.

(2) Represents certain direct and incremental costs resulting from acquisitions made by us and certain related restructuring and integration efforts as a result of those acquisitions, as well as fair value remeasurements and impairment charges on our strategic investments.

(3) For 2017, includes fees incurred in connection with the Special Dividend, 2017 First Lien Credit Facilities Amendments, and the 2017 Incremental Term B-1 Loan.

(4) Relates to the translation of monetary assets and liabilities that are denominated in Canadian dollars due to intercompany loans. In the first quarter of 2018, we designated certain of these intercompany loans to be of a long-term-investment nature and are recognizing foreign currency losses/(gains) on these loans in accumulated other comprehensive loss in the Condensed Consolidated Balance Sheet.

(5) For 2018, loss on extinguishment of debt includes (i) $213 million associated with the Koch Redemption in July 2018, which is primarily related to the payment of the redemption premium as well as the write-off of unamortized discount and deferred financing costs and (ii) $62 million associated with the partial paydown of the Prime Notes in February 2018, which is primarily related to the payment of the call premium as well as the write-off of a portion of the unamortized deferred financing costs. For 2017, loss on extinguishment of debt relates to the write-off of a portion of the debt discount and deferred financing costs associated with the amendments and restatements to our First Lien Credit Facilities.

(6) Represents other non-cash (gains)/losses associated with non-recurring items.

(7) Represents costs associated with upgrading cellular technology used in many of our security systems.

(8) Represents non-cash amortization expense associated with certain incremental contract costs that are deferred (referred to as deferred subscriber acquisition costs) including selling expenses (primarily commissions) related to acquiring customers.

(9) Represents non-cash amortization associated with non-refundable fees that are deferred (referred to as deferred subscriber acquisition revenue) received in connection with the initiation of a monitoring contract.

(10) Represents compensation expense associated with our equity compensation plans. Refer to Note 10 “Share-based Compensation” to the condensed consolidated financial statements for further discussion.

(11) In 2018, primarily includes income of approximately $22 million of one-time licensing fees, as well as a gain of $7.5 million from the sale of equity in a third party that we received as part of a settlement during the second quarter of 2018. Refer to Note 1 “Basis of Presentation and

32

Summary of Significant Accounting Policies” for further discussion. In 2017, primarily represents fees under a management consulting agreement, which was terminated in connection with the consummation of the IPO.

Quarter Ended September 30, 2018 Compared to Quarter Ended September 30, 2017

For the quarter ended September 30, 2018, Adjusted EBITDA increased by $15 million compared to 2017. This increase was primarily due to an increase in revenue from contractual monthly recurring fees for monitoring and other recurring services, as well as higher revenue from transactions in which security equipment is sold outright to customers partially offset by the associated costs.

Refer to the discussions above under “—Results of Operations” for further details.

Nine Months Ended September 30, 2018 Compared to Nine Months Ended September 30, 2017

For the nine months ended September 30, 2018, Adjusted EBITDA increased by $86 million compared to 2017. This increase was primarily due to an increase in revenue from contractual monthly recurring fees for monitoring and other recurring services, as well as higher revenue on transactions in which security equipment is sold outright to customers partially offset by the associated costs. The remainder of this increase was attributable to a decrease in general and administrative expenses, excluding share-based compensation expense, radio conversion costs, financing and consent fees, and other non-cash items that are excluded under our definition of Adjusted EBITDA.

Refer to the discussions above under “—Results of Operations” for further details.

Free Cash Flow

The table below reconciles Free Cash Flow to net cash provided by operating activities for the periods presented.

	For the Nine Months Ended
(in thousands)	September 30, 2018			September 30, 2017
Net cash provided by operating activities	$	1,405,964		$	1,262,340
Dealer generated customer accounts and bulk account purchases	(526,654		)	(486,037		)
Subscriber system assets	(428,292		)	(445,201		)
Capital expenditures	(94,151		)	(102,671		)
Free Cash Flow	$	356,867		$	228,431

Cash Flows from Operating Activities

Net cash provided by operating activities was $1,406 million and $1,262 million for the nine months ended September 30, 2018 and 2017, respectively.

Refer to the discussion below under “—Liquidity and Capital Resources” for further details.

Cash Outlays Related to Capital Expenditures

For the nine months ended September 30, 2018 and 2017, cash outlays related to capital expenditures includes (i) accounts purchased under the ADT Authorized Dealer Program and bulk account purchases of $527 million and $486 million, respectively, (ii) subscriber system asset additions of $428 million and $445 million, respectively, and (iii) capital expenditures of $94 million and $103 million, respectively.

Refer to the discussions below under “—Liquidity and Capital Resources” for further details.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

We expect our ongoing sources of liquidity to include cash generated from operations, as well as borrowings under our revolving credit facility and the issuance of equity and/or debt securities as appropriate given market conditions. Our future cash needs are expected to include cash for operating activities, working capital, capital expenditures, strategic investments, periodic principal and interest payments on our debt, and potential dividend payments to our stockholders. We may, from time to time, seek to retire or purchase our outstanding securities through cash purchases in the open market or through privately negotiated transactions or through a 10b5-1 repurchase plan or otherwise, and any such transactions may involve material amounts. We belie

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ve our cash position, borrowing capacity available under our revolving credit facility, and cash provided by operating activities are, and will continue to be, adequate to meet our operational and business needs in the next twelve months as well as our long-term liquidity needs.

We are a highly leveraged company with significant debt service requirements. As of September 30, 2018, we had $257 million in cash and cash equivalents and $350 million available under our revolving credit facility. The carrying value of total debt outstanding, including capital lease obligations, was $9,568 million as of September 30, 2018.

Initial Public Offering

In January 2018, in connection with the consummation of our IPO, we received net proceeds of $1,406 million, after deducting underwriting discounts, commissions, and offering expenses, from the sale of our shares in the IPO. In February 2018, we used approximately $649 million of the net proceeds from the IPO to voluntarily redeem $594 million aggregate principal amount of the Prime Notes and pay the related call premium. In accordance with definitive documents governing the Koch Preferred Securities, following the consummation of the IPO, we were required to maintain cash in the Segregated Account in an amount equal to at least $750 million until the Koch Preferred Securities were redeemed in full. As discussed below, we redeemed the Koch Preferred Securities in full on July 2, 2018 (“Koch Redemption”) using the funds in the Segregated Account as well as cash on hand immediately prior to redemption. The Koch Redemption resulted in a material impact to our condensed consolidated financial statements. Refer to the notes to the condensed consolidated financial statements for further discussion.

Long-Term Debt

Amendment and Restatement of First Lien Credit Agreement

On March 16, 2018, we entered into an Incremental Assumption and Amendment Agreement No.6 (“2018 First Lien Credit Agreement Amendment”), which further amended and restated the First Lien Credit Agreement (the First Lien Credit Agreement, as amended, restated, supplemented, or otherwise waived prior to the effective date of the 2018 First Lien Credit Agreement Amendment (“Existing Credit Agreement”) and, as amended by the 2018 First Lien Credit Agreement Amendment (“Amended and Restated Credit Agreement”)).

Prior to the effectiveness of the 2018 First Lien Credit Agreement Amendment, the Existing Credit Agreement included a revolving credit facility of $255 million maturing on May 2, 2021, and a revolving credit facility of $95 million maturing on July 1, 2020. In connection with the 2018 First Lien Credit Agreement Amendment, the existing revolving credit facilities were replaced with a first lien revolving credit facility with an aggregate commitment of up to $350 million maturing on March 16, 2023, subject to the repayment, extension, or refinancing with longer maturity debt of certain of our other indebtedness (“2023 Revolving Credit Facility”). Borrowings under the 2023 Revolving Credit Facility will bear interest at a rate equal to, at our option, either (a) a London Interbank Offered Rate (“LIBOR”) determined by reference to the costs of funds for Eurodollar deposits for the interest period relevant to such borrowing, adjusted for certain additional costs, or (b) a base rate determined by reference to the highest of (i) the federal funds rate plus 0.50% per annum, (ii) the prime rate of Barclays Bank PLC, and (iii) one-month adjusted LIBOR plus 1.00% per annum, in each case, plus the applicable margin of 2.75% for LIBOR loans and 1.75% for base rate loans. The applicable margin for borrowings under the 2023 Revolving Credit Facility is subject to one step-down based on a certain specified net first lien leverage ratio.

In addition, the Amended and Restated Credit Agreement requires us to pay a commitment fee between 0.375% and 0.50% (determined based on a net first lien leverage ratio) in respect of the unused commitments under the Replacement Revolving Credit Facility.

The term loan facilities under the Amended and Restated Credit Agreement continue to have the same terms as provided under the Existing Credit Agreement. Additionally, the parties to the Amended and Restated Credit Agreement continue to have the same obligations set forth in the Existing Credit Agreement.

The impact to the condensed consolidated financial statements as a result of the 2018 First Lien Credit Agreement Amendment was not material.

As of September 30, 2018, we had no borrowings outstanding under the 2023 Revolving Credit Facility, leaving a total borrowing capacity of $350 million.

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Prime Notes

On February 21, 2018, we used approximately $649 million of the net proceeds from the IPO to voluntarily redeem $594 million aggregate principal amount of the Prime Notes and pay the related call premium. We recognized a loss on extinguishment of debt of approximately $62 million related to the call premium and the write-off of a portion of the unamortized deferred financing costs. The aggregate principal amount of Prime Notes outstanding after the repayment was $2,546 million.

Koch Preferred Securities

The dividend obligation associated with the Koch Preferred Securities is reflected in interest expense, net in the Condensed Consolidated Statements of Operations. Beginning in the third quarter of 2017, in lieu of declaring and paying the dividend obligation on the Koch Preferred Securities, we elected to increase the accumulated stated value of such securities, which increased the reported balance of mandatorily redeemable preferred securities on the Condensed Consolidated Balance Sheet. Prior to the Koch Redemption, the reported balance of mandatorily redeemable preferred securities on the Condensed Consolidated Balance Sheet included approximately $96 million associated with the dividend obligation on the Koch Preferred Securities, of which approximately $51 million related to the dividend obligation on the Koch Preferred Securities for the nine months ended September 30, 2018. For the quarter and nine months ended September 30, 2017, the dividend obligation on the Koch Preferred Securities was $22 million and $63 million, respectively.

In May 2018, we entered into a written consent with the Koch Investor (“May 2018 Consent”), whereby we agreed to redeem all of the outstanding Koch Preferred Securities on July 2, 2018. On July 2, 2018, we redeemed the original stated value of $750 million of the Koch Preferred Securities for total consideration of approximately $949 million using the funds in the Segregated Account, as well as cash on hand immediately prior to the Koch Redemption. The total consideration paid includes approximately $103 million related to the redemption premium and tax reimbursements, as well as $96 million related to the accumulated dividend obligation on the Koch Preferred Securities. During the quarter and nine months ended September 30, 2018, we recognized a loss on extinguishment of debt of $213 million associated with the payment of the redemption premium, including tax reimbursements, and the write-off of unamortized discount and deferred financing costs, which is included in the Condensed Consolidated Statements of Operations.

Prior to the Koch Redemption, the certificate of designation of the Koch Preferred Securities restricted us from paying dividends on our common stock. However, the Koch Investor consented in January 2018 to a one-time distribution on or before June 30, 2018, not to exceed $50 million, which we used to declare a dividend on our common stock on March 15, 2018. Further, in the May 2018 Consent, the Koch Investor consented to an additional one-time distribution in an aggregate amount not to exceed $27 million, which we used to declare a dividend on our common stock on May 9, 2018.

Debt Covenants

As of September 30, 2018, we were in compliance with all financial covenant and other maintenance tests for all our debt obligations.

Refer to Note 5 “Debt” to the condensed consolidated financial statements for further discussion.

Dividends

During the nine months ended September 30, 2018, our board of directors declared the following cash dividends on our common stock:

Declared Date	Dividend per Share	Record Date	Payment Date
March 15, 2018	$0.035	March 26, 2018	April 5, 2018
May 9, 2018	$0.035	June 25, 2018	July 10, 2018
August 8, 2018	$0.035	September 18, 2018	October 2, 2018

On November 7, 2018, our board of directors declared a cash dividend of $0.035 per share to common stockholders of record as of December 14, 2018. This dividend will be paid on January 4, 2019.

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Cash Flow Analysis

The following table is a summary of our cash flow activity for the periods presented:

	For the Nine Months Ended
(in thousands)	September 30, 2018			September 30, 2017
Net cash provided by operating activities	$	1,405,964		$	1,262,340
Net cash used in investing activities	$	(1,084,020	)	$	(1,049,170	)
Net cash used in financing activities	$	(187,483	)	$	(129,586	)

Cash Flows from Operating Activities

For the nine months ended September 30, 2018 and 2017, net cash provided by operating activities was $1,406 million and $1,262 million, respectively. The increase in net cash provided by operating activities resulted from (i) an increase in revenue from contractual monthly recurring fees for monitoring and other recurring services, (ii) an increase in revenue from transactions in which security equipment is sold outright to customers partially offset by the associated costs, (iii) a decrease in cash paid of $64 million for fees associated with the Special Dividend, 2017 First Lien Credit Facilities Amendments, and the 2017 Incremental Term B-1 Loan, and (vi) a decrease in cash interest paid of $9 million on our long-term debt. These increases in cash flows from operating activities were partially offset by an increase in cash paid of $55 million associated with the dividend obligation on the Koch Preferred Securities. The increase in payments associated with the dividend obligation on the Koch Preferred Securities is due to a payment of $96 million in 2018 as part of the Koch Redemption as compared to $41 million in 2017. The remainder of the change in cash flows from operating activities relates to changes in assets and liabilities due to timing of other operating cash receipts and payments with respect to when the transactions are reflected in earnings.

Refer to the discussions above under “—Results of Operations” for further details.

Cash Flows from Investing Activities

We make certain investments in our business that are intended to grow our customer base, enhance the overall customer experience, improve the productivity of our field workforce, and support greater efficiency of our back-office systems and our customer care centers. For the nine months ended September 30, 2018 and 2017, our investing activities consisted of accounts purchased under the ADT Authorized Dealer Program and bulk account purchases of $527 million and $486 million, respectively, subscriber system asset additions of $428 million and $445 million, respectively, and capital expenditures of $94 million and $103 million, respectively. The increase in cash paid for dealer generated customer accounts was primarily driven by an increase in the volume of accounts purchased through the ADT Authorized Dealer Program. The decrease in subscriber system asset additions primarily resulted from the decrease in customer volume.

Furthermore, during the nine months ended September 30, 2018, we paid $48 million for business acquisitions, net of cash acquired, and received $14 million primarily related to proceeds received from the sale of an investment. During the nine months ended September 30, 2017, we paid $32 million for business acquisitions, net of cash acquired, and received $17 million primarily related to proceeds received from the sale of an investment.

Cash Flows from Financing Activities

For the nine months ended September 30, 2018, net cash used in financing activities primarily consisted of (i) payments related to the redemption of the Koch Preferred Securities of $853 million, (ii) the repayment of long-term borrowings of $686 million primarily associated with the partial paydown of the Prime Notes, and (iii) dividend payments on our common stock of $53 million. These payments were partially offset by net proceeds from the IPO of $1,406 million, after deducting related fees.

For the nine months ended September 30, 2017, net cash used in financing activities primarily consisted of net proceeds from long-term borrowings of $631 million primarily associated with the 2017 First Lien Credit Facilities Amendments and the 2017 First Incremental Term B-1 Loan, as well as dividend payments of $750 million related to the Special Dividend.

COMMITMENTS AND CONTRACTUAL OBLIGATIONS

In our 2017 Annual Report, we disclosed our commitments and contractual obligations. There have been no other material changes to these commitments and contractual obligations outside the ordinary course of business except as noted below.

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In February 2018, we used approximately $649 million of the net proceeds from the IPO to voluntarily redeem $594 million aggregate principal amount of the Prime Notes and pay the related call premium. Refer to Note 5 “Debt” to the condensed consolidated financial statements for further discussion.

In July 2018, we redeemed in full the original stated value of $750 million of the Koch Preferred Securities for total consideration of approximately $949 million, including the redemption premium and tax reimbursements, as well as the accumulated dividend obligation on the Koch Preferred Securities. Refer to Note 6 “Mandatorily Redeemable Preferred Securities” to the condensed consolidated financial statements for further discussion.

OFF-BALANCE SHEET ARRANGEMENTS

There were no material off-balance sheet arrangements as of September 30, 2018.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of revenue and expenses. We identified in our 2017 Annual Report accounting policies that are based on, among other things, estimates and judgments made by management that include inherent risks and uncertainties.

Refer to Note 1 “Basis of Presentation and Summary of Significant Accounting Policies” to the condensed consolidated financial statements for further information about recent accounting adoptions and pronouncements.

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report contains certain information that may constitute “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. While we have specifically identified certain information as being forward-looking in the context of its presentation, we caution you that all statements contained in this report that are not clearly historical in nature, including statements regarding anticipated financial performance, management’s plans and objectives for future operations, business prospects, market conditions, and other matters are forward-looking. Forward-looking statements are contained principally in the sections of this report entitled “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Without limiting the generality of the preceding sentence, any time we use the words “expects,” “intends,” “will,” “anticipates,” “believes,” “confident,” “continue,” “propose,” “seeks,” “could,” “may,” “should,” “estimates,” “forecasts,” “might,” “goals,” “objectives,” “targets,” “planned,” “projects,” and similar expressions, we intend to clearly express that the information deals with possible future events and is forward-looking in nature. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking.

Forward-looking information involves risks, uncertainties, and other factors that could cause actual results to differ materially from those expressed or implied in, or reasonably inferred from, such statements, including without limitation, the risks and uncertainties disclosed in Item 1A. of this report under the heading “Risk Factors.” Therefore, caution should be taken not to place undue reliance on any such forward-looking statements. Much of the information in this report that looks toward future performance of the Company is based on various factors and important assumptions about future events that may or may not actually occur. As a result, our operations and financial results in the future could differ materially and substantially from those we have discussed in the forward-looking statements included in the Quarterly Report. We assume no obligation (and specifically disclaim any such obligation) to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

For quantitative and qualitative disclosures about market risk, see Item 7A. “Quantitative and Qualitative Disclosures About Market Risk” in our 2017 Annual Report. Other than as set forth below, our exposures to market risk have not changed materially since December 31, 2017.

We hold interest rate swap contracts with the objective of managing exposure to variability in interest rates on our debt. As of September 30, 2018, we held interest rate swap contracts with an aggregate notional amount of $3.5 billion, which consist of $1.5 billion and $1.0 billion entered into in June 2018 and August 2018, respectively, both maturing in April 2022, as well as $1.0 billion entered into in 2017 maturing in April 2020. Refer to Note 9 “Derivative Financial Instruments” to the condensed consolidated financial statements for further discussion.

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ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules13a-15(e) or Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended (“the Exchange Act”)) as of the end of the period covered by this Quarterly Report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that as of September 30, 2018, the Company’s disclosure controls and procedures are effective in recording, processing, summarizing, and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act, and that information is accumulated and communicated to the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely discussions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2018, that has materially affected, or that is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

See Note 8 “Commitments and Contingencies” to the condensed consolidated financial statements under the heading “Legal Proceedings” included in this Quarterly Report on Form 10-Q for legal proceedings and related matters.

ITEM 1A. RISK FACTORS.

Our significant business risks are described in Part I, Item 1A. in our 2017 Annual Report, as filed with the SEC on March 15, 2018. You should be aware that these risk factors and other information may not describe every risk facing the Company. Other than as set forth below, there have been no material changes to our risk factors from those previously disclosed in our 2017 Annual Report.

We may be subject to securities class actions and other lawsuits which may harm our business and results of operations.

We have previously been subject to securities class actions in connection with issues that arose prior to our acquisition of The ADT Corporation while it was still a publicly traded company. The ADT Corporation became the subject of securities litigation as described in The ADT Corporation’s filings with the SEC. We may in the future become subject to additional securities litigation in connection with issues that may have arisen prior to our acquisition of The ADT Corporation. This type of litigation may be lengthy, and may result in substantial costs and a diversion of management’s attention and resources. Results cannot be predicted with certainty and an adverse outcome in such litigation could result in monetary damages or injunctive relief that could materially adversely affect our business, results of operations, financial condition and cash flows.

Five substantially similar shareholder class action lawsuits related to the January 2018 IPO of ADT Inc. common stock were filed in the Circuit Court of the Fifteenth Judicial Circuit in and for Palm Beach County, Florida in March, April, and May 2018. The actions are entitled Goldstrand Investments Inc. v. ADT Inc., Krebsbach v. ADT Inc., Katz v. ADT Inc., Sweet v. ADT Inc., and Lowinger v. ADT Inc. These cases have been consolidated for discovery and trial and are now entitled In re ADT Inc. Shareholder Litigation. The Lead Plaintiffs seek to represent a class of similarly situated shareholders and assert claims for alleged violations of the Securities Act of 1933, as amended (“Securities Act”). Plaintiffs allege that the ADT Inc. defendants violated the Securities Act because the registration statement and prospectus used to effectuate the IPO were false and misleading in that they allegedly misled investors with respect to litigation involving ADT Inc., ADT Inc.’s efforts to protect its intellectual property, and the competitive pressures faced by ADT Inc. Defendants moved to dismiss the consolidated complaint on October 23, 2018. Briefing on the motion is in progress. A similar shareholder class action lawsuit also related to the January 2018 IPO was filed in the United States District Court for the Southern District of Florida in May 2018. The action is entitled Perdomo v. ADT Inc. In September and October 2018, four substantially similar shareholder derivative complaints were also filed against various ADT Inc. officers, directors and controlling shareholders in the United States District Court for the Southern District of Florida. The actions are entitled, Velasco v. Whall; Myung v. Whall; Scheel v. Whall; and Bradel v. Whall. Plaintiffs allege breaches of fiduciary duties as directors, officers, and/or controlling shareholders of ADT Inc., unjust enrichment and violations of the federal securities laws for alleged misrepresentations regarding competitive pressures in the marketplace, litigation involving ADT Inc. intellectual property, and certain financial and operational metrics. On November 1, 2018, the Velasco action was transferred to the judge

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presiding over the earlier filed Perdomo action. These lawsuits may be lengthy, and may result in substantial costs and a diversion of management’s attention and resources. We can make no assurances that the outcome of such litigation will be favorable.

In addition, we are currently and may in the future become subject to legal proceedings and commercial or contractual disputes. These are typically claims that arise in the normal course of business, including, without limitation, commercial or contractual disputes with our suppliers; intellectual property matters; third-party liability, including product liability claims; and employment claims. There is a possibility that such claims may have a material adverse effect on our results of operations that is greater than we anticipate and/or negatively affect our reputation.

Our use of independent contractors for certain functions may expose us to additional risks.

In order to meet our evolving customer needs, we rely on third party independent contractors in addition to our existing workforce to perform certain tasks including, but not limited to, installation and service of our customer alarm systems. From time to time, we are involved in lawsuits and claims that assert that certain independent contractors should be treated as our employees. The state of the law regarding independent contractor status varies from state to state and is subject to change based on court decisions and regulation. For example, on April 30, 2018, the California Supreme Court adopted a new standard for determining whether a company “employs” or is the “employer” for purposes of the California Wage Orders in its decision in the Dynamex Operations West, Inc. v. Superior Court case. The Dynamex decision alters the analysis of whether an individual, who is classified by a hiring entity as an independent contractor in California, has been properly classified as an independent contractor. Under the new test, an individual is considered an employee under the California Wage Orders unless the hiring entity establishes three criteria: (i) the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact; (ii) the worker performs work that is outside the usual course of the hiring entity’s business; and (iii) the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.

In August 2017, Jabra Shuheiber filed civil litigation in Marin County Superior Court on behalf of himself and two other individuals asserting wage and hour violations against the Company. Mr. Shuheiber was the owner/operator of a sub-contractor, Maximum Protection, Inc., which employed the other two plaintiffs in the litigation. ADT Inc. has received an amended complaint in the Shuheiber matter to modify the plaintiffs’ wage and hour claims against ADT Inc. such that they were brought on a class basis, partly in response to the Dynamex decision. The amended complaint has not yet been served on ADT Inc.

Adverse determinations regarding the independent contractor status of any of our subcontractors could, among other things, entitle such individuals to the reimbursement of certain expenses and to the benefit of wage-and-hour laws, and could result in ADT Inc. being liable for employment and withholding tax and benefits for such individuals. Any such adverse determination could result in a material reduction of the number of subcontractors we can use for our business or significantly increase our costs to serve our customers, which could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

New tariffs and other trade restrictions imposed on imports from China or other countries where our end-user equipment is manufactured, or any counter-measures taken in response, may harm our business and results of operations.

New tariffs imposed on imports from China, where certain components included in our end-user equipment are manufactured, and any counter-measures taken in response to such new tariffs, may harm our business and results of operations. In September 2018, the United States federal government imposed new tariffs of 10% on certain alarm equipment components manufactured in China, and new tariffs of 25% on other categories of electronic equipment manufactured in China that we install in our customers’ premises, such as batteries and thermostats. The United States federal government has announced that the 10% tariff on certain alarm and other electronic equipment will increase to 25% in January 2019. These new tariffs may result in our costs for such equipment increasing as a result of some or all of such new tariffs being passed on to us by the sellers of such equipment. If any or all of the costs of these tariffs are passed on to us by the sellers of our end-user equipment, we may be required to raise our prices, which could result in the loss of customers and harm our business and results of operations. Alternatively, we may seek to find new sources of end-user products, which may result in higher costs and disruption to our business. In addition, the United States federal government recently passed the National Defense Authorization Act, which imposes a ban on the use of certain surveillance, telecommunications and other equipment manufactured by certain of our suppliers based in China, to help protect critical infrastructure and other sites deemed to be sensitive for national security purposes in the United States. This federal government ban is scheduled to be implemented in August 2019 and may require us to find new sources of end-user products, which may result in higher costs and disruption to our business. The United States federal government has also indicated that it may seek further modifications to trade agreements with China and other countries beyond the proposed tariff on electronics from China. In addition to the current tariffs and proposed higher tariffs on our end-user equipment manufactured in China, it is possible further tariffs will be imposed on imports of equipment that we install in end-user premises, or that our business will be impacted

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by retaliatory trade measures taken by China or other countries, causing us to raise our prices or make changes to our business, any of which could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

Recent Sales of Unregistered Securities

Set forth below is information regarding securities sold or granted by us during the nine months ended September 30, 2018 that were not registered under the Securities Act. Also included is the consideration, if any, received by us for such securities and information relating to the section of the Securities Act, or rule of the SEC, under which exemption from registration was claimed for such sales and grants. Such information is rounded to the nearest whole number, except per share data.

Common Stock

• On January 4, 2018, we effected a stock split whereby our issued and outstanding shares of common stock were reclassified as 641,118,571 shares of our common stock.

• On January 22, 2018, we issued 20,636,766 shares of common stock to Ultimate Parent.

• On January 25, 2018, we issued 147,620 shares of common stock to an executive officer of the Company to satisfy the Company’s obligations under a retention agreement. The retention grant was fully vested upon issuance.

Except as otherwise noted above, these transactions were exempt from registration pursuant to Section 4(a)(2) of the Securities Act, as they were transactions by an issuer that did not involve a public offering of securities.

Use of Proceeds from Registered Securities

In January 2018, we consummated an initial public offering of 105,000,000 shares of our common stock at a price of $14.00 per share pursuant to a Registration Statement on Form S-1 (Registration No. 333-222233), which was declared effective by the SEC on January 18, 2018. We received gross proceeds from our IPO of approximately $1,470 million, or $1,406 million after reflecting underwriting discounts and commissions of approximately $55 million, as well as offering expenses. In February 2018, we used approximately $649 million of the net proceeds from the IPO to voluntarily redeem $594 million aggregate principal amount of the Prime Notes and pay the related call premium. In addition, upon consummation of the IPO, we deposited $750 million of the net proceeds into the Segregated Account. In July 2018, we used the funds in the Segregated Account, along with cash on hand, to redeem in full the original stated value of $750 million of the Koch Preferred Securities for total consideration of approximately $949 million, including the redemption premium and tax reimbursements, as well as the accumulated dividend obligation on the Koch Preferred Securities. The remaining proceeds from the IPO were used for general corporate purposes.

Issuer Purchases of Equity Securities

We do not currently have a repurchase plan or program for our equity securities. However, we repurchased 4,203 equity securities in January 2018 from two former employees at our January 2018 initial public offering price of $14.00 per share. As described by the following information, there were no stock repurchases during the quarter ended September 30, 2018.

Period	Total Number of Shares Purchased	Average Price Paid Per Share
July 1, 2018 - July 31, 2018	—	$	—
August 1, 2018 - August 31, 2018	—	$	—
September 1, 2018 - September 30, 2018	—	$	—
Total	—	$	—

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

None.

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ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.

See Exhibit Index attached hereto, which is incorporated herein by reference.

Exhibits Index

The information required by this Item is set forth on the exhibit index.

		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	Exhibit	Filing Date
10.1	Incremental Assumption and Amendment Agreement No. 6, dated as of March 16, 2018, by and among Prime Security Services Borrower, LLC, Prime Security Services Holdings, LLC, the lenders party thereto, Barclays Bank PLC and the other parties party thereto	8-K	10.1	03/19/2018
10.2	Written Consent of Preferred Majority Holder, dated January 23, 2018	10-Q	10.2	05/09/2018
10.3	Agreement and Consent, dated May 8, 2018, by and among Koch SV Investments, LLC and ADT Inc.	10-Q	10.3	05/09/2018
10.4	ADT Inc. 2018 Omnibus Incentive Plan	S-1/A	10.32	01/08/2018
10.5	Form of Restricted Stock Unit Award Agreement for use under the ADT Inc. 2018 Omnibus Incentive Plan	S-1/A	10.33	01/08/2018
10.6	Form of Non-Qualified Option Award Agreement for use under the ADT Inc. 2018 Omnibus Incentive Plan	S-1/A	10.34	01/08/2018
10.7	Form of Non-Qualified Option Award Agreement for use under the ADT Inc. 2018 Omnibus Incentive Plan (Class B Unit Redemption)	S-1/A	10.35	01/08/2018
10.8	Form of Common Stock Award Agreement for use under the ADT Inc. 2018 Omnibus Incentive Plan	S-1/A	10.36	01/08/2018
10.9	ADT Inc. 2018 Omnibus Incentive Plan Restricted Stock Unit Non-Employee Director Award Agreement	10-Q	10.9	08/09/2018
10.10	Amendment to the Registration Rights Agreement between ADT Inc. and Prime Security Services TopCo Parent, L.P.	10-Q	10.10	08/09/2018
10.11*	Timothy J. Whall’s Retirement Agreement
10.12*	Second Amended & Restated Employment Agreement with James D. DeVries
31.1*	Certification of CEO, pursuant to SEC Rule 13a-14(a) and 15d-14(a)
31.2*	Certification of CFO, pursuant to SEC Rule 13a-14(a) and 15d-14(a)
32.1*	Certification by the CEO, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*	Certification by the CFO, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101	XBRL Instant Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

_________________________

* Filed herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		ADT Inc.
Date:	November 8, 2018	By:	/s/ Jeffrey Likosar
		Name:	Jeffrey Likosar
		Title:	Chief Financial Officer (Principal Financial and Accounting Officer)

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EX-10.11

Exhibit 10.11

Execution Version

RETIREMENT AGREEMENT

This Retirement Agreement (the “Agreement”) is dated as of September 4, 2018, by and among ADT Inc., a Delaware corporation (“ADT”), The ADT Security Corporation, a Delaware corporation (the “Company”), and, solely for purposes of Sections 3.E, 11, 14.J, and 14.K, Prime Security Services TopCo Parent, L.P., a Delaware limited partnership (“TopCo”), and Timothy J. Whall (the “Executive”).

WHEREAS, the Executive is employed by the Company and is a party to an Amended & Restated Employment Agreement, dated as of December 19, 2017 (as amended, modified, or supplemented from time to time, the “Employment Agreement”);

WHEREAS, the Executive serves TopCo, ADT, the Company, and their respective subsidiaries and affiliates (the “Company Group”) in the office of Chief Executive Officer and serves as a member of the board of directors of ADT (the “ADT Board”), the Company, and certain members of the Company Group;

WHEREAS, ADT, the Company, and the Executive have agreed that the Executive’s employment with the Company is scheduled to terminate effective as of November 30, 2018, or such earlier date as mutually agreed by the parties and that the Executive shall assist in the smooth transition of the Executive’s functions as reasonably directed by the ADT Board;

WHEREAS, on November 30, 2018, the Executive shall resign as Chief Executive Officer of the Company and shall cease to be an executive officer and employee of the Company;

WHEREAS, the Company wishes to provide the Executive with a retirement package, which is conditioned on the Executive’s timely, irrevocable execution of this Agreement and fulfilling all of his obligations in both the Employment Agreement, as applicable, and this Agreement, and including his continued compliance with certain restrictive covenants that survive his employment termination and his cooperation with the Company Group in transitioning of his duties; and

WHEREAS, the Parties desire to set forth in this Agreement the terms and conditions of the Executive’s termination from employment, and this Agreement shall govern the Executive’s, ADT’s, and the Company’s respective rights and obligations in connection with such termination.

NOW THEREFORE, in consideration of the promises, mutual covenants and other good and valuable consideration set forth in this Agreement, the receipt and sufficiency of which are hereby acknowledged, the Executive, ADT, and the Company (the “Parties”) and TopCo, with respect to Sections 3.E, 11, 14.J, and 14.K only, agree as follows:

1. Entire Agreement.

Except as otherwise expressly provided herein, this Agreement, and the Release (as defined below), is the entire agreement between the Parties with respect to the subject matter hereof and contains all agreements, whether written, oral, express, or implied, between the Parties relating

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Doc#: US1:12267307v11

Exhibit 10.11

thereto and supersedes and extinguishes all other agreements relating thereto, whether written, oral, express, or implied, between the Parties.

2. Termination of Employment.

A.    General. The Executive hereby acknowledges and agrees that his separation from service with the Company Group and his resignation from any and all titles, positions, and appointments the Executive holds with the Company or any member of the Company Group, whether as an officer, director, employee, consultant, trustee, committee member, agent or otherwise, will become effective as of the close of business on November 30, 2018 (the “Anticipated Date of Retirement”); provided, that such separation from service shall occur earlier upon the Executive’s death, a termination due to his Disability (as defined in the Employment Agreement), a termination by mutual agreement of the ADT Board and the Executive, or a termination by the Company for Cause (as defined in the Employment Agreement) (in any case, an “Early Retirement,” and the Executive’s ultimate date of such separation from service, the “Retirement Date”); provided, further that following the Retirement Date other than following an Early Retirement due to death, Disability, or a termination by the Company for Cause, the Executive shall remain a member of the ADT Board as contemplated by Section 2.B.2 below. Except as otherwise expressly set forth herein, effective as of the Retirement Date, the Executive shall have no authority to act on behalf of any member of the Company Group and shall not hold himself out as having such authority, enter into any agreement or incur any obligations on behalf of any member of the Company Group, commit any member of the Company Group in any manner, or otherwise act in an executive or other decision-making capacity with respect to any member of the Company Group. The Executive agrees to promptly execute such documents as the Company, in its sole discretion, shall reasonably deem necessary to effect such resignations. The Retirement Date shall be the termination date of the Executive’s employment for purposes of participation in and coverage under all benefit plans and programs sponsored by or through the Company, except as otherwise provided herein. The terms and conditions set forth herein shall exclusively govern the Executive’s continued employment with the Company from and after the date of this Agreement. For the avoidance of doubt, the Retirement Date will be the last day of the term of the Employment Agreement, and such separation from service will be deemed a voluntary resignation from employment without Good Reason (as defined in the Employment Agreement).

B. Duties.

1.    Transition Period. During the period commencing on the date of this Agreement and ending on the Retirement Date (the “Transition Period”), the Executive shall continue to perform such duties as reasonably assigned by ADT and/or the Company consistent with his then-current position, including without limitation transitional matters relating to the transition of his duties to his successor.

2.    Board Service and Engagement as Consultant. Following the Transition Period, the Executive will continue to serve as a member of the ADT Board through his current ADT Board term, which expires at the regular annual stockholders meeting of ADT to occur in 2020 (the “Board Term”). Except as otherwise determined by the Board, the Executive’s service on all committees of the Board shall cease as of the Retirement Date. During the Board Term, ADT will

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engage the Executive on behalf of the Company Group, and the Executive agrees to serve the Company Group, as a consultant in addition to serving as a member of the ADT Board, providing senior-level advisory services on a limited basis as reasonably requested by the ADT Board and/or senior management from time to time. Either the ADT Board or the Executive may elect to terminate the Board Term earlier than as set forth herein for any reason or no reason.

3. Entitlements.

In consideration for, and subject to, the Executive’s entering into this Agreement, (x) the satisfaction of the Release Condition set forth in Section 5 below, (y) the Executive’s continued compliance with all restrictive covenants with the Company Group to which he is subject (including the restrictive covenants in Sections 6 and 7 of the Employment Agreement, which are incorporated by reference herein), and (z) the Executive’s not otherwise engaging in conduct constituting Cause (collectively, the “Preconditions”), the Executive shall be entitled to the payments and benefits set forth in this Agreement. Notwithstanding the foregoing or anything to the contrary in this Agreement, the payments and benefits described in this Agreement (other than those described in Section 3.A) are subject to (i) the Executive’s execution and delivery of this Agreement within twenty-one (21) days following the date hereof and (ii) the Executive’s continued compliance with this Agreement (including satisfaction of the Release Condition). No payments or benefits described in this Agreement (other than those described in Section 3.A) shall be made until the “Release of All Claims” becomes irrevocable and effective in accordance with its terms, and any payments or benefits that would have been due or payable prior to such date shall be aggregated and paid promptly, but not later than the second payroll period following the Release Effective Date (as defined in the Release).

A.    Accrued Salary and Benefits. The Company shall pay to the Executive in a lump sum on the first regular payroll date that follows the Retirement Date (or such earlier date as required by law) any base salary that is accrued but unpaid as of such date. The Executive shall be entitled to all benefits accrued up to the Retirement Date (including, for the avoidance of doubt, accrued but unused vacation pay), to the extent vested, under all employee benefit plans of the Company Group in which the Executive participates (except for any plan that provides for bonus, severance, tax gross-up, separation pay or termination benefits, or benefits continuation) in accordance with the terms of such plans, and any amounts required to be paid pursuant to applicable law; provided, that this Section 3.A shall not result in duplication of benefits with any other payment or benefit under this Agreement or any other agreement or plan. For the avoidance of doubt, any medical, dental, and other health insurance coverage in which the Executive (and his beneficiaries) participate as of the Retirement Date shall continue through the end of the month during which the Retirement Date takes place. The Executive shall also be entitled to receive from the Company any reimbursable expenses owed to the Executive under Section 3(e) of the Employment Agreement.

B.    Remuneration for Transition Period. During the Transition Period, the Executive will continue to receive his current base salary, to be eligible to participate in the health insurance, deferred compensation, and other benefit plans of the Company Group in which he is currently eligible to participate, and to receive the perquisites and other personal benefits currently provided to him in the Employment Agreement and otherwise, subject in all cases to the discretion of the Company Group to amend or terminate any or all of such plans or arrangements at any time and

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from time to time in accordance with the terms thereof. Subject to the satisfaction of the Preconditions, the Executive will also remain eligible to earn an annual cash bonus for fiscal year 2018 in accordance with the terms and conditions of the Company’s bonus program that are applicable to the Executive for such year (the “FY18 Bonus”) in respect of services performed through the Retirement Date. Such FY18 Bonus shall be prorated for the period from January 1, 2018, through the Retirement Date and payable if and when annual bonuses are paid to other senior executives of the Company with respect to 2018.

C.    Remuneration for Board Service and Engagement as Consultant. The Executive will receive a cash retainer at the annual rate of $500,000 (the “Retainer Fee”) and payable in substantially equal monthly installments during the period commencing on the day immediately following the Retirement Date and continuing through the twenty-four (24) month anniversary of the Retirement Date, except as otherwise provided in Section 3.F below. In addition to the Retainer Fee, and subject to the satisfaction of the Preconditions, the Executive will continue vesting during, and following the expiration of, the Board Term in the following equity incentive awards currently held by him, which shall remain outstanding during such period in accordance with their terms as if he remained in active service as an employee (the “Continued Performance Vesting”):

1.    100% of the “Tranche B Option” granted pursuant to each of those two Nonqualified Option Award Agreements between the Executive and ADT dated January 18, 2018 (i.e., a total of 1,081,200 Tranche B Options), and

2.    100% of the “Performance Tranche” of the shares of ADT common stock distributed to the Executive in connection with ADT’s initial public offering in respect of his Class B Units in TopCo, as described in that certain Letter Regarding Class B Unit Matters from TopCo to the Executive dated January 16, 2018 (i.e., a total of 1,865,865 shares of ADT common stock).

The Company’s obligation to make any payments or to provide the Continued Performance Vesting under Section 3.B and 3.C of this Agreement shall terminate in the event that the Executive breaches any of the terms of this Agreement, and the Company shall, in addition, be entitled to recover damages in the event of any breach as set forth in Section 14.D.

D.    Full Satisfaction. The Executive acknowledges and agrees that, except as expressly provided in this Agreement, (i) the Executive is not entitled to any other compensation or benefits from the Company or any member of the Company Group (including without limitation any

(x) retainer, meeting, or other fees otherwise payable by ADT to its non-employee directors (whether, in cash, equity, or other forms of compensation); provided, that the Executive will be entitled to customary reimbursement of business expenses pursuant to the Company’s policies for reimbursement of business expenses of non-employee directors and consultants, or (y) severance or termination compensation or benefits upon or at any time following the Retirement Date (including upon his ultimate separation from the ADT Board or as a consultant), whether pursuant to the Employment Agreement, any severance plan or policy of the Company Group, or otherwise) and (ii) as of and after the Retirement Date, except for purposes of continued equity vesting as described in Section 3.C of this Agreement and any medical, dental, and other health insurance coverage that the Executive (and his beneficiaries) participate in pursuant to Section 3.A of this Agreement, the Executive shall no longer participate in, accrue service credit, or have contributions made on his behalf under any employee benefit plan sponsored by any member of

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the Company Group in respect of periods commencing on and following the Retirement Date, including without limitation, any plan that is intended to qualify under Section 401(a) of the Internal Revenue Code of 1986, as amended (the “Code”).

E.    Equity. Except as otherwise provided in Section 3.C of this Agreement, the Executive’s shares of ADT common stock, restricted stock units, and options to purchase ADT common stock shall be subject to the terms and conditions of the ADT Inc. Management Investor Rights Agreement (the “MIRA”), the ADT Inc. 2018 Omnibus Incentive Plan (the “Equity IncentivePlan”), the Class B Unit redemption notice, dated January 16, 2018 (and the documents referenced therein), the Restricted Stock Unit Award Agreement by and between the Executive and ADT, dated January 18, 2018, and the Nonqualified Option Award Agreements by and between the Executive and ADT, each dated January 18, 2018, as applicable. For purposes of clarity, as of the Retirement Date, the Executive shall forfeit 100% of the three-year cliff-vesting stock options (with respect to 590,861 shares of ADT common stock) and shall forfeit 100% of the three-year cliff-vesting restricted stock units (with respect to 160,714 shares of ADT Common Stock) granted to him by ADT on January 18, 2018, which shall immediately terminate and expire as of the Retirement Date. For the avoidance of doubt, the Executive’s Class A-2 units in TopCo shall remain subject to all terms and conditions set forth in the Fourth Amended and Restated Limited Partnership Agreement of TopCo dated November 7, 2016 (the “Partnership Agreement”). Without limiting their respective rights under the Partnership Agreement and the MIRA, TopCo and ADT do not anticipate exercising their respective rights to repurchase the Executive’s equity interests in connection with his retirement.

F.    Early Retirement. Notwithstanding anything herein to the contrary, in the event of an Early Retirement by the Company for Cause, or an Early Retirement based on a voluntary termination by the Executive prior to the six-month anniversary of the Retirement Date, then following such Early Retirement situations, other than any accrued salary or benefits provided in accordance with Section 3.A, the Executive shall not be entitled to any further payments or benefits from the Company, including without limitation any future payments of the Retainer Fee. For the avoidance of doubt, in the event of an Early Retirement by the Company without Cause, an Early Retirement based on a termination by the Company due to the Executive’s death or due to the Executive’s Disability, or an Early Retirement based on a voluntary termination by the Executive after the six-month anniversary of the Retirement Date, subject to the satisfaction of the Preconditions, the Executive shall continue to receive the Retainer Fee and the FY18 Bonus and shall remain eligible for the Continued Performance Vesting.

4.    Post-Employment Cooperation. The Executive hereby acknowledges his obligations pursuant to Section 10 of the Employment Agreement, which is incorporated herein by reference, and the Executive further acknowledges that such obligations shall survive his termination of employment with the Company Group.

5.    Release Condition. The Executive agrees to execute, and not subsequently revoke, a customary, comprehensive release of all claims against each member of the Company Group and its respective related parties (including without limitation its officers and directors, and Apollo), substantially in the form attached hereto as Exhibit A, upon (and covering all claims arising through) the Retirement Date, and agrees to bring down such release of claims upon (and covering all claims arising through) the last day of the Board Term (the “Release Condition”).

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6. Restrictive Covenants.

A.    Generally. The Executive agrees that Sections 6, 7, 8, and 10 of the Employment Agreement survive the termination of his employment, and he confirms that he is bound by such provisions, including but not limited to the non-competition, non-solicitation, and non- disparagement obligations set forth therein. The Company hereby acknowledges and reaffirms its obligations with respect to Section 7(d) of the Employment Agreement, which shall survive termination of Executive’s employment. The Executive also agrees that he is subject to continuing obligations under the Partnership Agreement, the Equity Incentive Plan and the award agreements issued thereunder that survive the termination of his employment, and he confirms that he is bound by such provisions, including but not limited to the non-competition and non-solicitation obligations set forth therein. If there is a conflict between the Executive’s continuing obligations under the Employment Agreement, the Partnership Agreement, the Equity Incentive Plan and the award agreements issued thereunder, the provisions more protective of the Company Group’s interests shall apply, as determined by the Company Group in its sole discretion. Notwithstanding anything herein to the contrary, for purposes of those restrictive covenants that survive for a fixed period of time based on the date on which the Executive’s employment terminates, and solely for those purposes, the Executive’s employment will be deemed to continue through, and to terminate upon, the last day of the Board Term. Further, Section 6(a)(i) of the Employment Agreement shall be amended by deleting the language in the agreement and replacing it with the following language:

“directly or indirectly engage in, have any equity interest in, or manage or operate any Person, firm, corporation, partnership, business or entity (whether as director, officer, employee, agent, representative, partner, security holder, consultant, or otherwise) that engages in (either directly or through any subsidiary or Affiliate thereof) any business or activity that competes with any of the businesses of the Company or any entity owned by the Company as of November 30, 2018, and any businesses as to which the Company has, as of November 30, 2018, undertaken material steps to enter into. Notwithstanding the foregoing, the Executive shall be permitted to acquire a passive stock or equity interest in such a business, provided that the stock or other equity interest acquired is not more than five percent (5%) of the outstanding interest in such business.”

B.    Return of Property. The Executive acknowledges that all notes, memoranda, specifications, devices, formulas, records, files, lists, drawings, documents, models, equipment, computers, phones, software, and intellectual property, in whatever form (including electronic), and all copies thereof, and any and all other assets and property of the Company Group or relating to the businesses of the Company Group that are received, held, or created by the Executive while an employee of the Company Group are and shall remain the property of the Company Group, and the Executive shall immediately return all such property to the Company Group upon the Retirement Date.

7.    No Complaints, Claims, or Actions Filed. The Executive represents that the Executive has not filed any complaints, claims, or actions against the Company or any Released Party (as defined in Section 8 below) with any state, federal, or local agency or court. The Executive covenants and agrees that the Executive will not file any complaints, claims, or actions against the Company or

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any Released Party with respect to a claim released pursuant to Section 8 below at any time hereafter. The Executive warrants and represents that, as of the date of execution of this Agreement, the Executive is not aware of any facts that would establish, tend to establish, or in any way support an allegation that the Company or any Released Party has engaged in conduct that the Executive believes could violate any federal, state, or local law, or to the extent that the Executive has or ever had any such information, the Executive has reported that information to the Company in accordance with Company policy.

8.    Release of All Claims. In consideration for the promises and obligations set forth in this Agreement, the Executive hereby irrevocably, unconditionally, and fully releases TopCo, ADT, the Company, and any affiliated entities, and each and all of its/their current and former shareholders, officers, agents, directors, supervisors, employees, and representatives, and its/their successors and assigns, and all persons acting by, though, under, or in concert with any of them (“Released Parties”), from any and all charges, complaints, claims, and liabilities of any kind or nature whatsoever, known or unknown, suspected or unsuspected (hereinafter referred to as “claim” or “claims”), that the Executive at any time had or claimed to have or that the Executive may have or claim to have regarding any matter as of the date of this Agreement, including, without limitation, any and all claims related to or in any manner incidental to the Executive’s employment or termination of employment with the Company. It is expressly understood by the Executive that among the various rights and claims being waived in this release include those arising under Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, the Age Discrimination in Employment Act (“ADEA”), the Family and Medical Leave Act, common law and any and all other applicable federal, state, county or local statutes, ordinances, or regulations, and the law of contract and tort. The released claims also include claims of discrimination or harassment on the basis of workers’ compensation status, but do not include workers’ compensation claims. By signing this Agreement, the Executive acknowledges that the Executive intends to waive and release all rights known or unknown that Executive may have against the Released Parties under these and any other laws; provided that the Executive does not waive or release claims with respect to (A) any rights that the Executive may have to any payments or benefits pursuant to Section 3 of this Agreement, (B) any claims or rights under the indemnification policy of any member of the Company Group in accordance with its respective operating agreement and in accordance with Section 9 of the Employment Agreement, which all parties acknowledge survives the termination of the Executive’s employment pursuant to its terms, (C) rights as an equityholder of TopCo and ADT, (D) any rights that the Executive has pursuant to this Agreement and any agreements governing his equity ownership, as applicable, and (E) rights that cannot be released as a matter of law.

9.    Reemployment. The Executive hereby waives any and all claims to reemployment with the Company or any of its affiliates and affirmatively agrees not to seek further employment with the Company or any of its affiliates.

10.    Release of Claims and Notices Required under the Age Discrimination in Employment Actand the Older Workers’ Benefit Protection Act. The Executive understands and agrees that the Executive:

A.    Has been offered at least twenty-one (21) days during which to consider this Agreement before signing it and understands that if he signs this Agreement prior to the expiration of such

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twenty-one (21) day period he knowingly and voluntarily waives the remainder of such consideration period;

B. Has carefully read and fully understands all of the provisions of this Agreement;

C.    Is waiving and releasing any rights under the ADEA and the Older Workers Benefit Protection Act (“OWBPA”), among other claims;

D. Knowingly and voluntarily agrees to all of the terms set forth in this Agreement;

E. Knowingly and voluntarily intends to be legally bound by the terms of this Agreement;

F.    Was advised and hereby is advised in writing to consider the terms of this Agreement and consult with an attorney of the Executive’s choice prior to executing this Agreement;

G.    Has a full seven (7) days from the date of execution of this to revoke this Agreement (including, without limitation, any and all claims arising under the ADEA) by sending written notice to P. Gray Finney, Chief Legal Officer, and that neither the Company nor any other person is obligated to provide any payments or benefits to the Executive pursuant to Section 3.B or 3.C of this Agreement until eight (8) days have passed since the Executive’s signing of this Agreement without the Executive’s having revoked this Agreement (such eighth (8th) day, on which the “Release of All Claims” under this Agreement becomes irrevocable and effective, the “ReleaseEffective Date”);

H.    Understands that rights or claims under the Age Discrimination in Employment Act of 1967 (29 U.S.C. § 621, et seq.) that may arise after the date this Agreement is executed are not waived;

I.    Understands that nothing in this Agreement (including Section 8) prevents or precludes the Executive from challenging or seeking a determination of the validity of this waiver under the ADEA or the OWBPA in good faith, nor that it imposes any condition precedent, penalties, or costs for doing so, unless specifically authorized by federal law; and

J.    Understands that once the Company has made its final offer of severance, any changes, whether material or immaterial, to this Agreement do not restart the twenty-one day period in which to consider the Agreement before signing it.

11.    Company Release of Claims. In consideration for the Executive’s release and waiver of claims herein and other good and valuable consideration and subject to the Executive’s satisfaction of the Preconditions, TopCo, ADT and the Company, on behalf of themselves and the Released Parties, hereby irrevocably, unconditionally, and fully release the Executive and his heirs, agents, executors, successors, assigns and administrators, from any and all charges, complaints, claims, and liabilities of any kind or nature whatsoever, known or unknown, suspected or unsuspected (hereinafter referred to as “claim” or “claims”), that TopCo, ADT, the Company or any Released Party at any time had or claimed to have or that TopCo, ADT, the Company or any Released Party may have or claim to have regarding any matter as of the date of this Agreement, including, without limitation, any and all claims related to or in any manner incidental to the Executive’s employment

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or termination of employment with any member of the Company Group. Notwithstanding the foregoing, TopCo, ADT, the Company and the Released Parties do not release or waive (i) any right or claim that arises against the Executive after the date of this Agreement, (ii) any claim against the Executive based on his intentional misconduct, fraud, criminal acts or gross neglect, or

(iii) any act that would not be covered under the Executive’s rights to indemnification from TopCo, ADT, the Company or any Released Party.

12.    No Admission of Liability. This Agreement and compliance with this Agreement shall not be construed as an admission by ADT, the Company, or any Released Party of any liability whatsoever, or as an admission by ADT, the Company, or any Released Party of any violations of the rights of the Executive or any person or violation of any order, law, statute, duty, or contract whatsoever against the Executive or any person. ADT, the Company, and each Released Party specifically disclaims any liability to the Executive or any other person for any alleged violation of the rights of the Executive or any person, or for any alleged violation of any order, law, statute, duty, or contract on the part of ADT, the Company, or any Released Party.

13.    Communication with Government Agency. Nothing in this Agreement, including Sections 6.A, 7, and 8, (A) limits or affects the Executive’s right to challenge the validity of this Agreement, including, without limitation, a challenge under the ADEA; (B) in any way interferes with the Executive’s right and responsibility to give truthful testimony under oath; or (C) precludes the Executive from participating in an investigation, filing a charge or otherwise communicating with any federal, state or local government office, official or agency, including, but not limited to, the Equal Employment Opportunity Commission, Department of Labor, or National Labor Relations Board. However, the Executive promises never to seek or accept any compensatory damages, back pay, front pay, or reinstatement remedies for the Executive personally with respect to any claims released by this Agreement.

14. Miscellaneous.

A.    Modification. This Agreement may not be modified or amended, nor may any rights hereunder be waived, except in a writing signed and agreed to by the parties hereto.

B.    Notices. Any notice given pursuant to this Agreement to any party hereto shall be deemed to have been duly given when mailed by registered or certified mail, return receipt requested, or by overnight courier, or when hand delivered as follows:

If to ADT or the Company or TopCo:

ADT Inc.

The ADT Security Corporation 1501 Yamato Road

Boca Raton, FL 33431 Attention: Chief Legal Officer

with a copy (which shall not constitute notice) to:

Paul, Weiss, Rifkind, Wharton & Garrison LLP

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1285 Avenue of the Americas New York, New York 10019

Attention: Taurie Zeitzer

Lawrence I. Witdorchic

If to the Executive, at the Executive’s most recent address on the payroll records of the Company.

with a copy (which shall not constitute notice) to:

Nick Day Law

95 River St., Suite 202

Hoboken, NJ 07030

Attention: Nick Day, Esq.

or at such other address any party shall from time to time designate by written notice, in the manner provided herein, to the other parties hereto.

C.    Successors and Assigns. This Agreement, including the “Release of All Claims,” shall be binding upon the Executive and the Company Group and upon their respective heirs, administrators, representatives, executors, successors, and assigns, and shall inure to the benefit of said parties, and each of them, and to their respective heirs, administrators, representatives, executors, successors, and assigns. The Executive expressly warrants that the Executive has not transferred to any party or entity any rights, causes of action, or claims released in this Agreement. The Executive agrees that each successor or affiliate of the Company shall be an express third- party beneficiary hereto and shall be entitled to enforce the provisions of this Agreement.

D.    General Consequences of Breach. If any party to this Agreement breaches this Agreement, for example, by bringing a lawsuit based on claims that such party has released, by making a false representation in this Agreement, or by a past or future breach of Section 6 of this Agreement, the non-breaching party will be entitled to recover all damages flowing from such breach; specifically, including, but not limited to reasonable attorneys’ fees and all other costs incurred by the non-breaching party as a result of the breach or false representation, such as the cost of defending any suit brought with respect to a released claim by the breaching party.

E.    Taxes. The Executive shall be responsible for the payment of any and all required federal, state, local, and foreign taxes incurred, or to be incurred, in connection with any amounts payable to the Executive under this Agreement. Notwithstanding any other provision of this Agreement to the contrary, the Company or any member of the Company Group, as applicable, may withhold from all amounts payable under this Agreement all federal, state, local, and foreign taxes that are required to be withheld pursuant to any applicable laws and regulations.

F.    Section 409A. The Parties intend that the compensation and benefits under this Agreement either be exempt from or compliant with Section 409A of the Code, and Section 11 of the Employment Agreement is hereby incorporated by reference mutatis mutandis as if fully set forth herein.

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G.    Severability. In the event that any provision of this Agreement is determined to be invalid or unenforceable, the remaining terms and conditions of this Agreement shall be unaffected and shall remain in full force and effect. In addition, if any provision is determined to be invalid or unenforceable due to its duration and/or scope, the duration and/or scope of such provision, as the case may be, shall be reduced, such reduction shall be to the smallest extent necessary to comply with applicable law, and such provision shall be enforceable, in its reduced form, to the fullest extent permitted by applicable law.

H.    Entire Agreement Between Parties. This Agreement (and the documents referenced herein) sets forth the entire agreement between the Parties hereto and, unless otherwise set forth herein, fully supersedes any and all prior agreements or understandings, written or oral, between the Parties hereto pertaining to the subject matter hereof; provided, however, if there is a conflict between this Agreement and any confidentiality, non-compete, or non-solicitation agreement the Executive previously signed, the provisions more protective of ADT’s and the Company’s interests shall apply, as determined by ADT and the Company in their sole discretion.

I.    Amendments; Waivers. This Agreement may not be modified, amended, or terminated except by an instrument in writing signed by the Executive and a duly authorized officer of ADT or the Company (other than the Executive) that expressly identifies the amended provision of this Agreement. By an instrument in writing similarly executed and similarly identifying the waived compliance, the Executive or a duly authorized officer of ADT or the Company may waive compliance by the other party or parties with any provision of this Agreement that such other party was or is obligated to comply with or perform; provided, however, that such waiver shall not operate as a waiver of, or estoppel with respect to, any other or subsequent failure to comply or perform. No failure to exercise and no delay in exercising any right, remedy, or power hereunder shall preclude any other or further exercise of any other right, remedy, or power provided herein or by law or in equity.

J.    Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO AGREEMENTS MADE AND TO BE WHOLLY PERFORMED WITHIN THAT STATE, WITHOUT REGARD TO ITS CONFLICT OF LAWS PROVISIONS OR THE CONFLICT OF LAWS PROVISIONS OF ANY OTHER JURISDICTION THAT WOULD CAUSE THE APPLICATION OF ANY LAW OTHER THAN THAT OF THE STATE OF DELAWARE.

K.    Dispute Resolution. The parties agree that any suit, action, or proceeding brought by or against a party in connection with this Agreement shall be brought solely in any state or federal court within the State of Delaware. Each party expressly and irrevocably consents and submits to the jurisdiction and venue of each such court in connection with any such legal proceeding, including to enforce any settlement, order or award, and such party agrees to accept service of process by the other party or any of its agents in connection with any such proceeding. In the event of any dispute between the Company and the Executive (including, but not limited to, under or with respect to this Agreement), subject to the Executive prevailing on at least one material claim or issue asserted in such dispute, the Company shall reimburse the Executive for all attorneys’ fees and other litigation costs incurred by the Executive in connection with such dispute. EACH PARTY HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN

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ANY SUIT, ACTION, OR OTHER PROCEEDING INSTITUTED BY OR AGAINST SUCH PARTY IN RESPECT OF ITS RIGHTS OR OBLIGATIONS HEREUNDER.

L.    Headings. The headings in this Agreement are for convenience of identification only and are not intended to describe, interpret, define or limit the scope, extent, or intent of this Agreement or any provision hereof.

M.    Construction. This Agreement shall be deemed drafted equally by the parties hereto. Its language shall be construed as a whole and according to its fair meaning. Any presumption or principle that the language is to be construed against any party shall not apply. The headings in this Agreement are only for convenience and are not intended to affect construction or interpretation. Any references to paragraphs, subparagraphs, sections, or subsections are to those parts of this Agreement, unless the context clearly indicates to the contrary. Also, unless the context clearly indicates to the contrary: (i) the plural includes the singular, and the singular includes the plural; (ii) “and” and “or” are each used both conjunctively and disjunctively; (iii) “any,” “all,” “each,” or “every” means “any and all,” and “each and every”; (iv) “includes” and “including” are each “without limitation”; and (v) “herein,” “hereof,” “hereunder,” and other similar compounds of the word “here” refer to the entire Agreement and not to any particular paragraph, subparagraph, section, or subsection.

N.    Counterparts. The Agreement may be executed by one or more of the Parties hereto on any number of separate counterparts and all such counterparts shall be deemed to be one and the same instrument. Each party hereto confirms that any facsimile copy or .pdf of such party’s executed counterpart of the Agreement (or its signature page thereof) shall be deemed to be an executed original thereof.

[Remainder of Page Intentionally Left Blank]

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IN WITNESS WHEREOF, the Parties have executed and delivered this Agreement as of the date written below.

EXECUTIVE
Date:	September 4, 2018	/s/ Timothy J. Whall
		TIMOTHY J. WHALL
ADT
		ADT INC.
Date:	September 4, 2018	By:	/s/ P. Gray Finney
			Name: P. Gray Finney
			Title: Senior Vice President, Chief
			Legal Officer and Secretary
COMPANY
		THE ADT SECURITY CORPORATION
Date:	September 4, 2018	By:	/s/ P. Gray Finney
			Name: P. Gray Finney
			Title: Senior Vice President, Chief
			Legal Officer and Secretary
For purposes of Section 3.E, Section 11, Section 14.J, and Section 14.K only:
TOPCO
		PRIME SECURITY SERVICES TOPCO
		PARENT, L.P.
Date:	September 4, 2018	By:	/s/ P. Gray Finney
			Name: P. Gray Finney
			Title: Senior Vice President, Chief
			Legal Officer and Secretary

[Signature Page to Retirement Agreement]

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Exhibit 10.11

Exhibit A

RELEASE OF CLAIMS (“Release”)

1.Release of All Claims. In consideration for the promises and obligations set forth in the Retirement Agreement dated as of September, 2018, by and among ADT, Inc. (“ADT”), The ADT Security Corporation (the “Company”), solely for purposes of Sections 3.E and 11, Prime Security Services TopCo Parent, L.P., a Delaware limited partnership (“TopCo”), and Timothy J. Whall (“Whall”) (the “Retirement Agreement”), Whall hereby irrevocably, unconditionally, and fully releases TopCo Parent, L.P. (“TopCo”), ADT, the Company, and any affiliated entities, and each and all of its/their current and former shareholders, officers, agents, directors, supervisors, employees, and representatives, and its/their successors and assigns, and all persons acting by, though, under, or in concert with any of them (“Released Parties”), from any and all charges, complaints, claims, and liabilities of any kind or nature whatsoever, known or unknown, suspected or unsuspected (hereinafter referred to as “claim” or “claims”), that Whall at any time had or claimed to have or that Whall may have or claim to have regarding any matter as of the date of this Release, including, without limitation, any and all claims related to or in any manner incidental to Whall’s employment or termination of employment with the Company. It is expressly understood by Whall that among the various rights and claims being waived in this release include those arising under Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, the Age Discrimination in Employment Act (“ADEA”), the Family and Medical Leave Act, common law and any and all other applicable federal, state, county or local statutes, ordinances, or regulations, and the law of contract and tort. The released claims also include claims of discrimination or harassment on the basis of workers’ compensation status, but do not include workers’ compensation claims. By signing this Release, Whall acknowledges that Whall intends to waive and release all rights known or unknown that Whall may have against the Released Parties under these and any other laws; provided that Whall does not waive or release claims with respect to (A) any rights he may have to any payments or benefits pursuant to Section 3 of the Retirement Agreement, (B) any claims or rights under the indemnification policy of Topco, ADT, the Company, or any of their respective subsidiaries in accordance with their respective operating agreements and in accordance with Section 9 of the Employment Agreement, which all parties acknowledge survives the termination of Whall’s employment pursuant to its terms, (C) rights as an equityholder of TopCo and ADT, (D) any rights that Whall has pursuant to the Retirement Agreement and any agreements governing his equity ownership, as applicable, and (E) rights that cannot be released as a matter of law.

2.No Complaints, Claims, or Actions Filed. Whall represents that Whall has not filed any complaints, claims, or actions against the Company or any Released Party with any state, federal, or local agency or court. Whall covenants and agrees that Whall will not file any complaints, claims, or actions against the Company or any Released Party with respect to a claim released pursuant to Section 1 above at any time hereafter. Whall warrants and represents that, as of the date of execution of this Release, Whall is not aware of any facts that would establish, tend to establish, or in any way support an allegation that the Company or any Released Party has engaged in conduct that Whall believes could violate any federal, state, or local law, or to the extent that Whall has or ever had any such information, Whall has reported that information to the Company in accordance with Company policy.

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Exhibit 10.11

3.Release of Claims and Notices Required under the Age Discrimination in Employment Actand the Older Workers’ Benefit Protection Act. Whall understands and agrees that Whall:

A.    Has been offered at least twenty-one (21) days during which to consider this Release before signing it and understands that if he signs this Release prior to the expiration of such twenty- one (21) day period he knowingly and voluntarily waives the remainder of such consideration period;

B. Has carefully read and fully understands all of the provisions of this Release;

C.    Is waiving and releasing any rights under the ADEA and the Older Workers Benefit Protection Act (“OWBPA”), among other claims;

D. Knowingly and voluntarily agrees to all of the terms set forth in this Release;

E. Knowingly and voluntarily intends to be legally bound by the terms of this Release;

F.    Was advised and hereby is advised in writing to consider the terms of this Release and consult with an attorney of Whall’s choice prior to executing this Release;

G.    Has a full seven (7) days from the date of execution of this to revoke this Release (including, without limitation, any and all claims arising under the ADEA) by sending written notice to P. Gray Finney, Chief Legal Officer, and that neither the Company nor any other person is obligated to provide any payments or benefits to Whall pursuant to Section 3.B or 3.C of the Retirement Agreement until eight (8) days have passed since Whall’s signing of this Release without Whall’s having revoked this Release (such eighth (8th) day, on which this Release becomes irrevocable and effective, the “Release Effective Date”);

H.    Understands that rights or claims under the Age Discrimination in Employment Act of 1967 (29 U.S.C. § 621, et seq.) that may arise after the date this Release is executed are not waived;

I.    Understands that nothing in this Release (including Section 1) prevents or precludes Whall from challenging or seeking a determination of the validity of this waiver under the ADEA or the OWBPA in good faith, nor that it imposes any condition precedent, penalties, or costs for doing so, unless specifically authorized by federal law; and

J.    Understands that once the Company has made its final offer of severance, any changes, whether material or immaterial, to this Release do not restart the twenty-one day period in which to consider the Release before signing it.

4.Compliance with Obligations. Whall represents and warrants that, as of the date on which he executes this Release; he has complied in all respects with all of his obligations under the Retirement Agreement and that he is not in breach of any terms thereof.

5.Company Release of Claims. In consideration for Whall’s release and waiver of claims herein and other good and valuable consideration and subject to the Executive’s satisfaction of the Preconditions, TopCo, ADT and the Company, on behalf of themselves and the Released Parties, hereby irrevocably, unconditionally, and fully release Whall and his heirs, agents, executors,

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Exhibit 10.11

successors, assigns and administrators, from any and all charges, complaints, claims, and liabilities of any kind or nature whatsoever, known or unknown, suspected or unsuspected (hereinafter referred to as “claim” or “claims”), that TopCo, ADT, the Company or any Released Party at any time had or claimed to have or that ADT, the Company or any Released Party may have or claim to have regarding any matter as of the date of this Release, including, without limitation, any and all claims related to or in any manner incidental to Whall’s employment or termination of employment with the Company. Notwithstanding the foregoing, TopCo, ADT, the Company and the Released Parties do not release or waive (i) any right or claim that arises against Whall after the date of this Release, (ii) any claim against Whall based on his intentional misconduct, fraud, criminal acts or gross neglect, or (iii) any act that would not be covered under Whall’s rights to indemnification from TopCo, ADT, the Company or any Released Party.

6.No Admission of Liability. This Release and compliance with this Release shall not be construed as an admission by ADT, the Company, or any Released Party of any liability whatsoever, or as an admission by ADT, the Company, or any Released Party of any violations of the rights of Whall or any person or violation of any order, law, statute, duty, or contract whatsoever against Whall or any person. ADT, the Company, and each Released Party specifically disclaims any liability to Whall or any other person for any alleged violation of the rights of Whall or any person, or for any alleged violation of any order, law, statute, duty, or contract on the part of ADT, the Company, or any Released Party.

7.Communication with Government Agency. Nothing in this Release, including Sections 1 and 2, (A) limits or affects Whall’s right to challenge the validity of this Release, including, without limitation, a challenge under the ADEA; (B) in any way interferes with Whall’s right and responsibility to give truthful testimony under oath; or (C) precludes Whall from participating in an investigation, filing a charge or otherwise communicating with any federal, state or local government office, official or agency, including, but not limited to, the Equal Employment Opportunity Commission, Department of Labor, or National Labor Relations Board. However, Whall promises never to seek or accept any compensatory damages, back pay, front pay, or reinstatement remedies for Whall personally with respect to any claims released by this Release.

8. Miscellaneous. Section 14 of the Retirement Agreement is incorporated into this Release,

mutatis mutandis.

[Signature Page Follows]

A-3

IN WITNESS WHEREOF, Whall, TopCo, ADT, and The ADT Security Corporation have executed and delivered this Release as of the date written below.

WHALL
Date:
	TIMOTHY J. WHALL
ADT
	ADT INC.
Date:	By:
		Name:
		Title:
COMPANY
	THE ADT SECURITY CORPORATION
Date:	By:
		Name:
		Title:
TOPCO
	PRIME SECURITY SERVICES TOPCO
	PARENT, L.P.
Date:	By:
		Name:
		Title:

[Signature Page to Retirement Agreement]

EX-10.12

Exhibit 10.12

EXECUTION VERSION

SECOND AMENDED & RESTATED EMPLOYMENT AGREEMENT

This Second Amended & Restated Employment Agreement (the “Agreement”), entered into on September 4, 2018, is made by and between James D. DeVries (the “Executive”) and ADT LLC, a Delaware limited liability company (together with any of its subsidiaries and Affiliates as may employ the Executive from time to time, and any and all successors thereto, the “Company”).

RECITALS

A.The parties hereto have previously entered into an employment agreement, dated December 14, 2016, which was subsequently amended and restated on December 19, 2017 (the “Prior Agreement”).

B.The parties hereto wish to amend and restate the Prior Agreement in its entirety as set forth herein.

C.It is the desire of the Company to assure itself of the continued services of the Executive by engaging the Executive to perform services under the terms hereof.

D.The Executive desires to continue providing services to the Company on the terms herein provided.

AGREEMENT

NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements set forth below, the parties hereto agree as follows:

1.Certain Definitions.

(a)    “Action” shall have the meaning set forth in Section 10.

(b)    “ADT Inc.” shall mean ADT Inc., a Delaware corporation and indirect parent of the Company.

(c)    “Affiliate” shall mean, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with such Person, where “control” shall have the meaning given such term under Rule 405 of the Securities Act of 1933, as amended.

(d) “Agreement” shall have the meaning set forth in the preamble hereto.

(e) “Annual Base Salary” shall have the meaning set forth in Section 3(a).

(f) “Annual Bonus” shall have the meaning set forth in Section 3(b).

(g) “Board” shall mean the Board of Directors of ADT Inc.

(h)    The Company shall have “Cause” to terminate the Executive’s employment pursuant to Section 4(a)(iii) hereunder upon (i) the Executive’s conviction of, or plea of nolo contendere to, any felony or other crime involving either fraud or a breach of the Executive’s duty

of loyalty with respect to ADT Inc., the Company or any subsidiaries or other Affiliates thereof, or any of its customers or suppliers that results in material injury to ADT Inc., the Company or any of their subsidiaries, (ii) the Executive’s substantial and repeated failure to perform duties as reasonably directed by the Board (not as a consequence of Disability) after written notice thereof and failure to cure within ten (10) days, (iii) the Executive’s fraud, misappropriation, embezzlement, or material misuse of funds or property belonging to ADT Inc., the Company or any of their subsidiaries, (iv) the Executive’s willful violation of the written policies of ADT Inc., the Company or any of their subsidiaries or Affiliates, or other willful misconduct in connection with the performance of his duties that in either case results in material injury to ADT Inc., the Company or any of their subsidiaries, after written notice thereof and failure to cure within ten days, (v) the Executive’s material breach of the Agreement that results in material injury to ADT Inc., the Company or any of their subsidiaries, and failure to cure such breach within ten (10) days after written notice, or (vi) the Executive’s breach of the confidentiality or non-disparagement provisions (excluding unintentional breaches that are cured within ten (10) days after the Executive becomes aware of such breaches, to the extent curable) or the non-competition and non-solicitation provisions to which the Executive is subject, including without limitation Sections 6 and 7 hereof, that results in material injury to ADT Inc., the Company or any of their subsidiaries.

(i) “Code” shall mean the Internal Revenue Code of 1986, as amended.

(j)“Company” shall, except as otherwise provided in Sections 6 and 7, have the meaning set forth in the preamble hereto.

(k)“Date of Termination” shall mean (i) if the Executive’s employment is terminated by his death, the date of his death, (ii) if the Executive’s employment is terminated pursuant to Section 4(a)(ii)-(vi), the date specified or otherwise effective pursuant to Section 4(b), or (iii) if the Executive’s employment is terminated upon expiration of the Term due to either party’s non- renewal in accordance with Section 2(b), the last day of the then-current Term.

(l)“Disability” shall mean the disability of the Executive caused by any physical or mental injury, illness, or incapacity as a result of which Executive has been unable to effectively perform the essential functions of Executive's duties for a continuous period of more than 120 days or for any 180 days (whether or not continuous) within a 365-day period, as determined by the Board in good faith.

(m)“Effective Date” shall mean December 1, 2018 (or the day immediately following such earlier date on which the current Chief Executive Officer of ADT Inc. ceases to be the Chief Executive Officer of ADT Inc. and its subsidiaries and Affiliates).

(n) “Executive” shall have the meaning set forth in the preamble hereto.

(o)The Executive shall have “Good Reason” to resign from his employment pursuant to Section 4(a)(v) in the event that any of the following actions are taken by the Company or any of its subsidiaries without his consent: (i) a decrease in the Executive’s annual Base Salary, (ii) a decrease in the Executive’s Target Bonus, (iii) any failure by the Company to pay any material compensation due and payable to Executive in connection with his employment or the employment agreement, (iv) any material diminution of the duties, responsibilities, authority, positions, or titles

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of the Executive, (v) the Company’s requiring Executive to be based at any location more than thirty (30) miles from the Boca Raton, Florida, area, or (vi) any material breach by the Company of any term or provision of the Agreement;

provided, however, that none of the events described in the foregoing clauses shall constitute Good Reason unless the Executive has notified the Company in writing describing the events that constitute Good Reason within forty-five (45) days following the first occurrence of such events and then only if the Company fails to cure such events within thirty (30) days after the Company’s receipt of such written notice.

(o) “Initial Term” shall have the meaning set forth in Section 2(b).

(p) “Notice of Termination” shall have the meaning set forth in Section 4(b).

(q)“Person” shall mean an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, governmental authority, or other entity of whatever nature.

(r) “Proprietary Information” shall have the meaning set forth in Section 7(a).

(s) “Severance Period” shall have the meaning set forth in Section 5(b)(i).

(t) “Target Bonus” shall have the meaning set forth in Section 3(b).

(u) “Term” shall have the meaning set forth in Section 2(b).

2. Employment.

(a)In General. The Company shall continue to employ the Executive, and the Executive shall continue in the employment of the Company, for the period set forth in Section 2(b), in the position set forth in Section 2(c), and upon the other terms and conditions herein provided.

(b)Term of Employment. The initial term of employment under this Agreement (the “Initial Term”) shall be for the period beginning on the May 23, 2016, and ending on May 23, 2021, unless earlier terminated as provided in Section 4. The Initial Term shall automatically be extended for successive one (1) year periods (together with the Initial Term, the “Term”), unless either party hereto gives notice of the non-extension of the Term to the other party no later than ninety (90) days prior to the expiration of the then-applicable Term.

(c) Position and Duties.

(i)Prior to the Effective Date, the Executive shall serve as President of ADT Inc. with responsibilities, duties, and authority customary for such position. As of the Effective Date, the Executive shall (i) cease serving as President of ADT Inc. and its subsidiaries and Affiliates and (ii) serve as Chief Executive Officer of ADT Inc. with responsibilities, duties, and authority customary for such position. Such duties, responsibilities, and authority may include services for one or more subsidiaries of ADT Inc. (including, but not limited to, the Company).

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Prior to the Effective Date, the Executive shall report to the Chief Executive Officer of the Company. As of the Effective Date, the Executive shall report to the Board. The Executive agrees to observe and comply with the Company’s rules and policies as adopted from time to time by the Company. The Executive shall devote his full business time, skill, attention, and best efforts to the performance of his duties hereunder; provided, however, that the Executive shall be entitled to

(A)serve on civic, charitable, and religious boards and, with advance notice to the Board, one (1) for-profit board of directors, and (B) manage the Executive’s personal and family investments, in each case, to the extent that such activities do not materially interfere with the performance of the Executive’s duties and responsibilities hereunder, are not in conflict with the business interests of the Company or its Affiliates, and do not otherwise compete with the business of the Company or its Affiliates.

(ii)    As of the Effective Date, the Executive will be appointed as a member of the Board. During the Term, but following the Effective Date, ADT Inc. shall nominate the Executive for re-election as a director of ADT Inc. upon the expiration of the Executive’s initial term as a director and upon the expiration of each subsequent term thereafter.

(iii)    The principal place of the Executive’s employment shall be the Company’s corporate headquarters in Boca Raton, Florida. The Executive shall perform his duties and responsibilities to the Company at such principal place of employment and at such other location(s) to which the Company may reasonably require the Executive to travel for Company business purposes.

3. Compensation and Related Matters.

(a)Annual Base Salary. During the Term, but prior to the Effective Date, the Executive shall receive a base salary at a rate of six hundred seventy-five thousand dollars ($675,000) per annum, which shall be paid in accordance with the customary payroll practices of the Company, subject to annual review and possible increase (but not decrease) as determined by the Board in its sole discretion (the “Annual Base Salary”). As of the Effective Date, the Executive’s Annual Base Salary shall be increased to one million dollars ($1,000,000).

(b)Annual Bonus. With respect to each calendar year that ends during the Term, the Executive shall be eligible to receive an annual cash bonus (the “Annual Bonus”). Prior to the Effective Date, the Executive will have a target Annual Bonus amount equal to one hundred percent (100%) of the Annual Base Salary (the “Target Bonus”). As of the Effective Date, the Executive’s Target Bonus shall be increased to one hundred twenty-five percent (125%) of the Annual Base Salary. For calendar year 2018, the Executive’s Annual Bonus shall be determined using a weighted average of the Executive’s pre- and post-Effective Date Target Bonus opportunities (i.e., assuming an Effective Date occurring on December 1, 2018, 11/12ths of $675,000, plus 1/12th of $1,250,000). The Executive’s actual Annual Bonus for a given year, if any, shall be determined on the basis of the Executive’s and/or the Company’s attainment of objective financial and/or other subjective or objective criteria established by the Board and communicated to the Executive at the beginning of such year. Each such Annual Bonus shall be payable on such date as is determined by the Board, but in any event within the period required by Section 409A of the Code such that it qualifies as a “short-term deferral” pursuant to Section 1.409A-1(b)(4) of the Department of Treasury Regulations (or any successor thereto).

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Notwithstanding the foregoing, no Annual Bonus shall be payable with respect to any calendar year unless the Executive remains continuously employed with the Company on the date of payment; provided, however, that notwithstanding the foregoing, the Executive shall be entitled to a prorated portion of the Annual Bonus payable with respect to any calendar year in which his employment ends as a result of the Company’s non-extension of the Term pursuant to Section 2(b) (provided that such termination would not have constituted a termination for Cause under this Agreement), determined on a daily basis, based solely on the actual level of achievement of the applicable performance goals for such year, and payable if and when annual bonuses are paid to other senior executives of the Company with respect to such year, but in any event within the period required by Section 409A of the Code such that it qualifies as a “short-term deferral” pursuant to Section 1.409A-1(b)(4) of the Department of Treasury Regulations (or any successor thereto).

(c)Benefits. During the Term, the Executive shall be entitled to participate in the employee benefit plans, programs, and arrangements of the Company now (or, to the extent determined by the Board, hereafter) in effect, in accordance with their terms, including, without limitation, pension benefits and medical and welfare benefits.

(d)Vacation. During the Term, the Executive shall be entitled to four (4) weeks of paid vacation per calendar year, in accordance with the Company’s vacation policies. Any vacation shall be taken at the reasonable and mutual convenience of the Company and the Executive.

(e)Equity Awards. As soon as practicable after the date of this Agreement, the Executive shall be granted additional options to purchase one million (1,000,000) shares of ADT’s common stock (“New Options”). The New Options shall have the same terms and conditions as the previous grants of options that were granted on January 18, 2018, by ADT to the Executive in connection with ADT’s initial public offering (including a three-year cliff-vesting schedule and term, which vesting schedule will commence as of the Effective Date), except that the exercise price per share of the New Options shall be equal to the fair market value of a share of ADT common stock on the date of grant (as determined under the ADT 2018 Omnibus Incentive Plan). Notwithstanding the foregoing, if the date of grant occurs at a time when ADT is in a closed trading window, then the date of grant will be the first date thereafter that occurs (i) in an open trading window and (ii) on which the New York Stock Exchange is open for trading. During the Term, following the Effective Date, in addition to the New Options, the Executive shall be eligible to participate in ADT’s long-term incentive plans as generally made available to other senior executives of the Company and its Affiliates. During the Term, commencing with the long-term incentive award for fiscal year 2019, the Executive will be eligible to receive a long-term incentive award (at the time awards are made to the other senior executives of the Company and its Affiliates) with a target value (as determined by the Compensation Committee of the Board) equal to 450% of the Executive’s then-current Annual Base Salary.

(f)Business Expenses. During the Term, the Company shall reimburse the Executive for all reasonable travel and other business expenses incurred by him in the performance of his duties to the Company, in accordance with the Company’s expense reimbursement policies and procedures.

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4.Termination. The Executive’s employment hereunder may be terminated prior to the expiration of the Term resulting from a non-renewal pursuant to Section 2(b) above by the Company or the Executive, as applicable, without any breach of this Agreement only under the following circumstances:

(a)Circumstances.

(i)Death. The Executive’s employment hereunder shall terminate upon his death.

(ii)Disability. If the Executive has incurred a Disability, the Company may give the Executive written notice of its intention to terminate the Executive’s employment. In that event, the Executive’s employment with the Company shall terminate effective on the later of the thirtieth (30th) day after receipt of such notice by the Executive and the date specified in such notice, provided that within the thirty (30) day period following receipt of such notice, the Executive shall not have returned to full-time performance of his duties hereunder.

(iii)Termination with Cause. The Company may terminate the Executive’s employment with Cause.

(iv)Termination without Cause. The Company may terminate the Executive’s employment without Cause.

(v)Resignation with Good Reason. The Executive may resign from his employment with Good Reason.

(vi)Resignation without Good Reason. The Executive may resign from his employment without Good Reason upon not less than forty-five (45) days’ advance written notice to the Board.

(b)Notice of Termination. Any termination of the Executive’s employment by the Company or by the Executive under this Section 4 (other than termination pursuant to Section 4(a)(i)) shall be communicated by a written notice to the other party hereto (i) indicating the specific termination provision in this Agreement relied upon, (ii) except with respect to a termination pursuant to Section 4(a)(iv) or (vi), setting forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated, and (iii) specifying a Date of Termination as provided herein (a “Notice ofTermination”). If the Company delivers a Notice of Termination under Section 4(a)(ii), the Date of Termination shall be at least thirty (30) days following the date of such notice; provided,however, that such notice need not specify a Date of Termination, in which case the Date of Termination shall be determined pursuant to Section 4(a)(ii). If the Company delivers a Notice of Termination under Section 4(a)(iii) or 4(a)(iv), the Date of Termination shall be, in the Company’s sole discretion, the date on which the Executive receives such notice or any subsequent date selected by the Company. If the Executive delivers a Notice of Termination under Section 4(a)(v), the Date of Termination shall be at least thirty (30) days following the date of such notice; provided, however, that the Company may, in its sole discretion, accelerate the Date of Termination to any date that occurs following the Company’s receipt of such notice, without changing the characterization of such termination as voluntary, even if such date is prior to the

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date specified in such notice. The failure by the Company or the Executive to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Cause or Good Reason shall not waive any right of the Company or the Executive hereunder or preclude the Company or the Executive from asserting such fact or circumstance in enforcing the Company’s or the Executive’s rights hereunder.

(c)Termination of All Positions. Upon termination of the Executive’s employment for any reason, the Executive agrees to resign, as of the Date of Termination or such other date requested by the Company, from his position on the Board and all committees thereof (and, if applicable, from the board of directors or similar governing bodies (and all committees thereof) of all other Affiliates of the Company) and from all other positions and offices that the Executive then holds with the Company and its Affiliates.

5. Company Obligations upon Termination of Employment.

(a)In General. Subject to Section 11(b), upon termination of the Executive’s employment for any reason, the Executive (or the Executive’s estate) shall be entitled to receive

(i)any amount of the Executive’s Annual Base Salary earned through the Date of Termination not theretofore paid, (ii) any expenses owed to the Executive under Section 3(f), (iii) any accrued vacation pay owed to the Executive pursuant to Section 3(d), and (iv) any amount arising from the Executive’s participation in, or benefits under, any employee benefit plans, programs, or arrangements under Section 3(c) (other than severance plans, programs, or arrangements, including, but not limited to, the ADT Corporation Change in Control Severance Plan, the ADT Corporation Severance Plan for U.S. Officers and Executives, and the ADT LLC Severance Plan for U.S. Employees), which amounts shall be payable in accordance with the terms and conditions of such employee benefit plans, programs, or arrangements including, where applicable, any death and disability benefits.

(b)Termination without Cause or Resignation with Good Reason. Subject to Section 11(b), if the Company terminates the Executive’s employment without Cause pursuant to Section 4(a)(iv) or if the Company elects not to renew the term of this Agreement and terminate the Executive’s employment hereunder in accordance with Section 2(b) above, or if the Executive resigns from his employment with Good Reason pursuant to Section 4(a)(v), the Company shall, in addition to the benefits and payments under Section 5(a)-

(i)continue to pay the Annual Base Salary in accordance with the Company’s customary payroll practices during the period (the “Severance Period”) beginning on the Date of Termination and ending on the earlier to occur of (A) the twenty-four (24) month anniversary of the Date of Termination and (B) the first date that the Executive violates any covenant contained in Section 6 or 7;

(ii)continue to provide coverage during the Severance Period for the Executive and any eligible dependents under all Company health and welfare plans in which the Executive and any such dependents participated immediately prior to the Date of Termination, to the extent permitted thereunder (and to the extent that such benefits may be provided under applicable law without penalty) and subject to any active-employee cost-sharing or similar provisions in effect for the Executive thereunder as of immediately prior to the Date of Termination; and

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(iii)subject to the Executive’s compliance with the covenants contained in Sections 6 and 7, pay the Executive a prorated portion of the Annual Bonus payable with respect to the calendar year in which such termination occurs, determined on a daily basis, based solely on the actual level of achievement of the applicable performance goals for such year, and payable if and when annual bonuses are paid to other senior executives of the Company with respect to such year.

provided, however, that notwithstanding the foregoing, (x) the amounts payable to the Executive under this Section 5(b) shall be contingent upon and subject to the Executive’s execution and non- revocation of a general waiver and release of claims agreement in the Company’s customary form (and the expiration of any applicable revocation period), on or prior to the sixtieth (60th) day following the Date of Termination; and (y) the installment payments pursuant to this Section 5(b) shall commence on the first payroll period following the effective date of such release of claims, and the initial installment shall include a lump-sum payment of all amounts accrued under this Section 5(b) from the Date of Termination through the date of such initial payment.

(c)Survival. The expiration or termination of the Term shall not impair the rights or obligations of any party hereto, which shall have accrued prior to such expiration or termination.

6. Non-Competition; Non-Solicitation; Non-Hire.

(a)The Executive shall not, at any time during the Term or during the twenty-four (24) month period following the Date of Termination:

(i)directly or indirectly engage in, have any equity interest in, or manage or operate any Person, firm, corporation, partnership, business or entity (whether as director, officer, employee, agent, representative, partner, security holder, consultant, or otherwise) that engages in (either directly or through any subsidiary or Affiliate thereof) any business or activity that competes with any of the businesses of the Company or any entity owned by the Company. Notwithstanding the foregoing, the Executive shall be permitted to acquire a passive stock or equity interest in such a business, provided that the stock or other equity interest acquired is not more than five percent (5%) of the outstanding interest in such business;

(ii)directly or indirectly solicit, on his own behalf or on behalf of any other Person or entity, the services of, or hire, any individual who is (or, at any time during the previous year, was) an employee, independent contractor, or director of the Company (other than an individual who was within the previous year his personal assistant or secretary), or solicit any of the Company’s then-current employees, independent contractors, or directors to terminate services with the Company, provided that (A) following the six (6) month anniversary of the Date of Termination, the foregoing shall not apply to any employee, independent contractor or director who has been terminated by the Company at least six (6) months prior to such solicitation, and (B) the placement of general advertisements in newspapers, magazines or electronic media shall not, by itself, constitute a breach of this Section 6(a)(ii); or

(iii)directly or indirectly, on his own behalf or on behalf of any other person or entity, recruit or otherwise solicit or induce any customer, subscriber, or supplier of the Company

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to terminate its arrangement with the Company, or otherwise change its relationship with the Company.

(b)In the event that the terms of this Section 6 shall be determined by any court of competent jurisdiction to be unenforceable by reason of its extending for too great a period of time or over too great a geographical area or by reason of its being too extensive in any other respect, it will be interpreted to extend only over the maximum period of time for which it may be enforceable, over the maximum geographical area as to which it may be enforceable, or to the maximum extent in all other respects as to which it may be enforceable, all as determined by such court in such action.

(c)As used in this Section 6, the term “Company” shall include ADT Inc., the Company, and any direct or indirect subsidiaries thereof or any successors thereto.

(d)The provisions contained in Section 6(a) may be waived with the prior written consent of the Board.

7. Nondisclosure of Proprietary Information; Nondisparagement.

(a)Except as required in the faithful performance of the Executive’s duties hereunder or pursuant to Section 7(c), the Executive shall, during the Term and after the Date of Termination, maintain in confidence and shall not directly or indirectly, use, disseminate, disclose or publish, or use, for his benefit or the benefit of any Person, firm, corporation, or other entity, any confidential or proprietary information or trade secrets of or relating to the Company, including, without limitation, information with respect to the Company’s operations, processes, protocols, products, inventions, business practices, finances, principals, vendors, suppliers, customers, potential customers, marketing methods, costs, prices, contractual relationships, regulatory status, compensation paid to employees, or other terms of employment (“Proprietary Information”), or deliver to any Person, firm, corporation, or other entity any document, record, notebook, computer program, or similar repository of or containing any such Proprietary Information. The Executive’s obligation to maintain and not use, disseminate, disclose or publish, or use, for his benefit or the benefit of any Person, firm, corporation, or other entity, any Proprietary Information after the Date of Termination will continue so long as such Proprietary Information is not, or has not by legitimate means become, generally known and in the public domain (other than by means of the Executive’s direct or indirect disclosure of such Proprietary Information) and continues to be maintained as Proprietary Information by the Company. The parties hereby stipulate and agree that as between them the Proprietary Information identified herein is important and material and affects the successful conduct of the businesses of the Company (and any successor or assignee of the Company).

(b)Upon termination of the Executive’s employment with the Company for any reason, the Executive will promptly deliver to the Company all correspondence, drawings, manuals, letters, notes, notebooks, reports, programs, plans, proposals, and financial documents, and any other documents, concerning the Company’s customers, business plans, marketing strategies, products, or processes.

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(c)The Executive may respond to a lawful and valid subpoena or other legal process but shall give the Company the earliest possible notice thereof, and shall, as much in advance of the return date as possible, make available to the Company and its counsel the documents and other information sought and shall assist such counsel in resisting or otherwise responding to such process.

(d)The Executive agrees not to disparage the Company, any of its products or practices, or any of its directors, officers, agents, representatives, stockholders, or Affiliates, either orally or in writing, at any time and the Company shall use its reasonable best efforts to cause its officers and directors not to disparage the Executive at any time; provided, however, that the Executive may, and the Company’s officers and directors may (A) confer in confidence with his (or in the case of an officer or director, their personal or the Company’s) legal representatives,

(B)make truthful statements as required by law or when requested by a governmental, regulatory or similar body or entity, and/or (C) make truthful statements in the course of performing his or their duties to the Company. As used in this Section 7, the term “Company” shall include ADT Inc., the Company, and any direct or indirect subsidiaries thereof or any successors thereto.

8.Injunctive Relief. The Executive recognizes and acknowledges that a breach of any of the covenants contained in Sections 6 and 7 will cause irreparable damage to the Company and its goodwill, the exact amount of which will be difficult or impossible to ascertain, and that the remedies at law for any such breach will be inadequate. Accordingly, the Executive agrees that in the event of a breach of any of the covenants contained in Sections 6 and 7, in addition to any other remedy that may be available at law or in equity, the Company will be entitled to seek specific performance and injunctive relief.

9.Indemnification. During the Executive’s employment and service as a director or officer (or both) and at all times thereafter during which the Executive may be subject to liability, the Executive shall be entitled to indemnification set forth in the Company’s Certificate of Incorporation and By-laws to the maximum extent allowed under the laws of the State of Delaware and he shall be entitled to the protection of any insurance policies the Company may elect to maintain generally for the benefit of its directors and officers against all costs, charges, and expenses incurred or sustained by him in connection with any action, suit, or proceeding to which he may be made a party by reason of his being or having been a director, officer, or employee of the Company or any of its subsidiaries (other than any dispute, claim, or controversy arising under or relating to this Agreement). Notwithstanding anything to the contrary herein, the Executive’s rights under this Section 9 shall survive the termination of his employment for any reason and the expiration of this Agreement for any reason.

10.Cooperation. The Executive agrees that during and after his employment with the Company, the Executive will assist the Company and its Affiliates in the defense of any claims or potential claims that may be made or threatened to be made against the Company or any of its Affiliates in any action, suit, or proceeding, whether civil, criminal, administrative, investigative, or otherwise, that are not adverse to the Executive (each, an “Action”), and will assist the Company and its Affiliates in the prosecution of any claims that may be made by the Company or any of its Affiliates in any Action, to the extent that such claims may relate to the Executive’s employment or the period of the Executive’s employment by the Company and its Affiliates. The Executive agrees, unless precluded by law, to promptly inform the Company if the Executive is asked to

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participate (or otherwise become involved) in any such Action. The Executive also agrees, unless precluded by law, to promptly inform the Company if the Executive is asked to assist in any investigation (whether governmental or otherwise) of the Company or any of its Affiliates (or their actions) to the extent that such investigation may relate to the Executive’s employment or the period of the Executive’s employment by the Company, regardless of whether a lawsuit has then been filed against the Company or any of its Affiliates with respect to such investigation. The Company or one of its Affiliates shall reimburse the Executive for all of the Executive’s reasonable out-of-pocket expenses associated with such cooperation following his Date of Termination.

11. Section 409A of the Code.

(a)General. The parties hereto acknowledge and agree that, to the extent applicable, this Agreement shall be interpreted in accordance with, and incorporate the terms and conditions required by, Section 409A of the Code and the Department of Treasury Regulations and other interpretive guidance issued thereunder, including without limitation any such regulations or other guidance that may be issued after the date hereof. Notwithstanding any provision of this Agreement to the contrary, in the event that the Company determines that any amounts payable hereunder will be taxable currently to the Executive under Section 409A(a)(1)(A) of the Code and related Department of Treasury guidance, the Company and the Executive shall cooperate in good faith to (i) adopt such amendments to this Agreement and appropriate policies and procedures, including amendments and policies with retroactive effect, that they mutually determine to be necessary or appropriate to preserve the intended tax treatment of the benefits provided by this Agreement, to preserve the economic benefits of this Agreement, and to avoid less-favorable accounting or tax consequences for the Company, and/or (ii) take such other actions as mutually determined to be necessary or appropriate to exempt the amounts payable hereunder from Section 409A of the Code or to comply with the requirements of Section 409A of the Code and thereby avoid the application of penalty taxes thereunder; provided, however, that this Section 11(a) does not create an obligation on the part of the Company to modify this Agreement and does not guarantee that the amounts payable hereunder will not be subject to interest or penalties under Section 409A, and in no event whatsoever shall the Company or any of its Affiliates be liable for any additional tax, interest, or penalties that may be imposed on the Executive as a result of Section 409A of the Code or any damages for failing to comply with Section 409A of the Code.

(b)Separation from Service under Section 409A. Notwithstanding any provision to the contrary in this Agreement: (i) no amount shall be payable pursuant to Section 5(a) or Section 5(b) unless the termination of the Executive’s employment constitutes a “separation from service” within the meaning of Section 1.409A-1(h) of the Department of Treasury Regulations;

(ii)if the Executive is deemed at the time of his separation from service to be a “specified employee” for purposes of Section 409A(a)(2)(B)(i) of the Code, to the extent that delayed commencement of any portion of the termination benefits to which the Executive is entitled under this Agreement (after taking into account all exclusions applicable to such termination benefits under Section 409A), including, without limitation, any portion of the additional compensation awarded pursuant to Section 5(a) or Section 5(b), is required in order to avoid a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code, such portion of the Executive’s termination benefits shall not be provided to the Executive prior to the earlier of (A) the expiration of the six-month period measured from the date of the Executive’s “separation from service” with the Company (as such term is defined in the Department of Treasury Regulations issued under

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Section 409A) and (B) the date of the Executive’s death; provided, that upon the earlier of such dates, all payments deferred pursuant to this Section 11(b)(ii) shall be paid to the Executive in a lump sum, and any remaining payments due under this Agreement shall be paid as otherwise provided herein; (iii) the determination of whether the Executive is a “specified employee” for purposes of Section 409A(a)(2)(B)(i) of the Code as of the time of his separation from service shall be made by the Company in accordance with the terms of Section 409A of the Code and applicable guidance thereunder (including, without limitation, Section 1.409A-1(i) of the Department of Treasury Regulations and any successor provision thereto); (iv) for purposes of Section 409A of the Code, the Executive’s right to receive installment payments pursuant to Section 5(b) shall be treated as a right to receive a series of separate and distinct payments; and

(v) to the extent that any reimbursement of expenses or in-kind benefits constitutes “deferred compensation” under Section 409A, such reimbursement or benefit shall be provided no later than December 31 of the year following the year in which the expense was incurred. The amount of expenses reimbursed in one year shall not affect the amount eligible for reimbursement in any subsequent year. The amount of any in-kind benefits provided in one year shall not affect the amount of in-kind benefits provided in any other year.

12. Section 280G of the Code.

(a)If there is a change of ownership or effective control or change in the ownership of a substantial portion of the assets of the Company (within the meaning of Section 280G of the Code) (a “Change in Control”) and any payment or benefit (including payments and benefits pursuant to this Agreement) that the Executive would receive from the Company or otherwise (“Transaction Payment”) would (i) constitute a “parachute payment” within the meaning of Section 280G of the Internal Revenue Code of 1986 (the “Code”), and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then the Company shall cause to be determined, before any amounts of the Transaction Payment are paid to the Executive, which of the following two alternative forms of payment would result in the Executive’s receipt, on an after-tax basis, of the greater amount of the Transaction Payment notwithstanding that all or some portion of the Transaction Payment may be subject to the Excise Tax: (1) payment in full of the entire amount of the Transaction Payment (a “Full Payment”), or

(2) payment of only a part of the Transaction Payment so that the Executive receives the largest payment possible without the imposition of the Excise Tax (a “Reduced Payment”). For purposes of determining whether to make a Full Payment or a Reduced Payment, the Company shall cause to be taken into account all applicable federal, state and local income and employment taxes and the Excise Tax (all computed at the highest applicable marginal rate, net of the maximum reduction in federal income taxes which could be obtained from a deduction of such state and local taxes). If a Reduced Payment is made, the reduction in payments and/or benefits will occur in the following order: (1) first, reduction of cash payments, in reverse order of scheduled payment date (or if necessary, to zero), (2) then, reduction of non-cash and non-equity benefits provided to the Executive, on a pro rata basis (or if necessary, to zero), and (3) then, cancellation of the acceleration of vesting of equity award compensation in the reverse order of the date of grant of the Executive’s equity awards.

(b)Unless the Executive and the Company otherwise agree in writing, any determination required under this section shall be made in writing by the Company’s independent public accountants (the “Accountants”), whose determination shall be conclusive and binding

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upon the Executive and the Company for all purposes. For purposes of making the calculations required by this section, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Accountants shall provide detailed supporting calculations to the Company and the Executive as requested by the Company or the Executive. The Executive and the Company shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this section. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this section as well as any costs incurred by the Executive with the Accountants for tax planning under Sections 280G and 4999 of the Code.

(c)Notwithstanding the foregoing, in the event that no stock of the Company is readily tradable on an established securities market or otherwise (within the meaning of Section 280G of the Code) at the time of the Change in Control, the parties may elect to submit to a vote of shareholders for approval the portion of the Transaction Payments that exceeds three times the Executive’s “base amount” (within the meaning of Section 280G of the Code) (the “ExcessParachute Payments”) in accordance with Treas. Reg. §1.280G-1, and the Executive shall cooperate with such vote of shareholders, including the execution of any required documentation subjecting the Executive’s entitlement to all Excess Parachute Payments to such shareholder vote.

13.Assignment and Successors. The Company may assign its rights and obligations under this Agreement to any entity, including any successor to all or substantially all the assets of the Company, by merger or otherwise, and may assign or encumber this Agreement and its rights hereunder as security for indebtedness of the Company and its Affiliates. The Executive may not assign his rights or obligations under this Agreement to any individual or entity. This Agreement shall be binding upon and inure to the benefit of the Company and the Executive and their respective successors, assigns, personnel, legal representatives, executors, administrators, heirs, distributees, devisees, and legatees, as applicable. In the event of the Executive’s death following a termination of his employment, all unpaid amounts otherwise due the Executive (including under Section 5) shall be paid to his estate.

14.Governing Law. This Agreement shall be governed, construed, interpreted, and enforced in accordance with the substantive laws of the State of Delaware, without reference to the principles of conflicts of law of Delaware or any other jurisdiction, and where applicable, the laws of the United States.

15.Validity. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.

16.Notices. Any notice, request, claim, demand, document, and other communication hereunder to any party hereto shall be effective upon receipt (or refusal of receipt) and shall be in writing and delivered personally or sent by telex, telecopy, or sent by nationally recognized overnight courier, or certified or registered mail, postage prepaid, to the following address (or at any other address as any party hereto shall have specified by notice in writing to the other party hereto):

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(a)If to the Company:

ADT LLC

1501 Yamato Rd. Boca Raton, FL 33431 Fax: 855-238-0131

Attention: Chief Legal Officer and a copy to:

Paul, Weiss, Rifkind, Wharton & Garrison LLP 1285 Avenue of the Americas

New York, New York 10019-6064 Fax: (212) 757-3990

Attention: Lawrence I. Witdorchic

(b)If to the Executive, at his most recent address on the payroll records of the Company.

17.Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same Agreement.

18.Entire Agreement. The terms of this Agreement (together with any other agreements and instruments contemplated hereby or referred to herein) is intended by the parties hereto to be the final expression of their agreement with respect to the employment of the Executive by the Company and may not be contradicted by evidence of any prior or contemporaneous agreement (including, without limitation, any term sheet and the Prior Agreement). The parties hereto further intend that this Agreement shall constitute the complete and exclusive statement of its terms and that no extrinsic evidence whatsoever may be introduced in any judicial, administrative, or other legal proceeding to vary the terms of this Agreement.

19.Amendments; Waivers. This Agreement may not be modified, amended, or terminated except by an instrument in writing signed by the Executive and a duly authorized officer of Company that expressly identifies the amended provision of this Agreement. By an instrument in writing similarly executed and similarly identifying the waived compliance, the Executive or a duly authorized officer of the Company may waive compliance by the other party or parties with any provision of this Agreement that such other party was or is obligated to comply with or perform; provided, however, that such waiver shall not operate as a waiver of, or estoppel with respect to, any other or subsequent failure to comply or perform. No failure to exercise and no delay in exercising any right, remedy, or power hereunder shall preclude any other or further exercise of any other right, remedy, or power provided herein or by law or in equity.

20.No Inconsistent Actions. The parties hereto shall not voluntarily undertake or fail to undertake any action or course of action inconsistent with the provisions or essential intent of this Agreement. Furthermore, it is the intent of the parties hereto to act in a fair and reasonable manner with respect to the interpretation and application of the provisions of this Agreement.

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21.Construction. This Agreement shall be deemed drafted equally by both of the parties hereto. Its language shall be construed as a whole and according to its fair meaning. Any presumption or principle that the language is to be construed against any party shall not apply. The headings in this Agreement are only for convenience and are not intended to affect construction or interpretation. Any references to paragraphs, subparagraphs, sections, or subsections are to those parts of this Agreement, unless the context clearly indicates to the contrary. Also, unless the context clearly indicates to the contrary: (a) the plural includes the singular, and the singular includes the plural; (b) “and” and “or” are each used both conjunctively and disjunctively; (c) “any,” “all,” “each,” or “every” means “any and all,” and “each and every”; (d) “includes” and “including” are each “without limitation”; and (e) “herein,” “hereof,” “hereunder,” and other similar compounds of the word “here” refer to the entire Agreement and not to any particular paragraph, subparagraph, section, or subsection.

22.Dispute Resolution. The parties agree that any suit, action or proceeding brought by or against such party in connection with this Agreement shall be brought solely in any state or federal court within the State of Delaware. Each party expressly and irrevocably consents and submits to the jurisdiction and venue of each such court in connection with any such legal proceeding, including to enforce any settlement, order or award, and such party agrees to accept service of process by the other party or any of its agents in connection with any such proceeding. In the event of any dispute between the Company and the Executive (including, but not limited to, under or with respect to this Agreement), subject to the Executive prevailing on at least one material claim or issue asserted in such dispute, the Company shall reimburse the Executive for all attorneys’ fees and other litigation costs incurred by the Executive in connection with such dispute. EACH PARTY HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY SUIT, ACTION OR OTHER PROCEEDING INSTITUTED BY OR AGAINST SUCH PARTY IN RESPECT OF ITS RIGHTS OR OBLIGATIONS HEREUNDER.

23.Enforcement. If any provision of this Agreement is held to be illegal, invalid, or unenforceable under present or future laws effective during the term of this Agreement, such provision shall be fully severable, this Agreement shall be construed and enforced as if such illegal, invalid, or unenforceable provision were never a part of this Agreement, and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid, or unenforceable provision or by its severance from this Agreement. Furthermore, in lieu of such illegal, invalid, or unenforceable provision, there shall be added automatically as part of this Agreement a provision as similar in terms to such illegal, invalid, or unenforceable provision as may be possible and be legal, valid, and enforceable.

24.Withholding. The Company shall be entitled to withhold from any amounts payable under this Agreement any federal, state, local, and foreign withholding and other taxes and charges that the Company is required to withhold. The Company shall be entitled to rely on an opinion of counsel if any questions as to the amount or requirement of withholding shall arise.

25.Employee Acknowledgement. The Executive acknowledges that he has read and understands this Agreement, is fully aware of its legal effect, has not acted in reliance upon any representations or promises made by the Company other than those contained in writing herein, and has entered into this Agreement freely based on his own judgment.

[signature page follows]

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The parties have executed this Agreement as of the date first written above.

COMPANY
ADT LLC
By:	/s/ P. Gray Finney
	Name: P. Gray Finney
	Title: Senior Vice President, Chief
	Legal Officer and Secretary
EXECUTIVE
/s/ James D. DeVries
James D. DeVries

[Signature Page to James D. DeVries Second Amended & Restated Employment Agreement]

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EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Timothy J. Whall, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of ADT Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Omitted pursuant to SEC Release No. 34-54942;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 8, 2018

/s/ Timothy J. Whall

Timothy J. Whall

Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Jeffrey Likosar, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of ADT Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Omitted pursuant to SEC Release No. 34-54942;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 8, 2018

/s/ Jeffrey Likosar

Jeffrey Likosar

Chief Financial Officer

EX-32.1

Exhibit 32.1

ADT INC.

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Timothy J. Whall, Chief Executive Officer of ADT Inc. (the “Company”), do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

•the Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2018 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

•information contained in the Report fairly presents, in all material respects, the financial condition and results of the operations of the Company.

/s/ Timothy J. Whall

Timothy J. Whall

Chief Executive Officer

November 8, 2018

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff on request.

EX-32.2

Exhibit 32.2

ADT INC.

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Jeffrey Likosar, Chief Financial Officer of ADT Inc. (the “Company”), do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

•the Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2018 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

•information contained in the Report fairly presents, in all material respects, the financial condition and results of the operations of the Company.

/s/ Jeffrey Likosar

Jeffrey Likosar

Chief Financial Officer

November 8, 2018

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff on request.

XML

Document and Entity Information Document - shares	9 Months Ended
	Sep. 30, 2018	Nov. 02, 2018
Entity [Abstract]
Entity Registrant Name	ADT Inc.
Entity Central Index Key	0001703056
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Document Type	10-Q
Document Period End Date	Sep. 30, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q3
Amendment Flag	false
Entity Common Stock, Shares Outstanding		756,587,893

XML

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Current assets:
Cash and cash equivalents	$ 256,917	$ 122,899
Accounts receivable trade, less allowance for doubtful accounts of $41,144 and $34,042, respectively	154,629	148,822
Inventories	79,332	85,672
Work-in-progress	28,481	21,252
Prepaid expenses and other current assets	107,364	77,241
Total current assets	626,723	455,886
Property and equipment, net	308,671	332,445
Subscriber system assets, net	2,906,559	2,892,683
Intangible assets, net	7,488,118	7,856,775
Goodwill	5,088,325	5,070,586
Deferred subscriber acquisition costs, net	400,946	282,478
Other assets	148,242	123,967
Total assets	16,967,584	17,014,820
Current liabilities:
Current maturities of long-term debt	48,327	48,060
Accounts payable	206,135	187,695
Deferred revenue	310,766	309,157
Accrued expenses and other current liabilities	444,572	351,340
Total current liabilities	1,009,800	896,252
Long-term debt	9,519,504	10,121,126
Mandatorily redeemable preferred securities—authorized 1,000,000 shares Series A of $0.01 par value; issued and outstanding 750,000 shares as of December 31, 2017	0	682,449
Deferred subscriber acquisition revenue	505,188	368,669
Deferred tax liabilities	1,370,142	1,376,708
Other liabilities	126,956	136,504
Total liabilities	12,531,590	13,581,708
Commitments and contingencies (See Note 8)
Stockholders' equity:
Common stock—authorized 3,999,000,000 shares of $0.01 par value; issued and outstanding shares of 766,772,382 and 641,118,571 as of September 30, 2018 and December 31, 2017, respectively	7,668	2
Additional paid-in capital	5,947,280	4,435,329
Accumulated deficit	(1,504,054)	(998,212)
Accumulated other comprehensive loss	(14,900)	(4,007)
Total stockholders' equity	4,435,994	3,433,112
Total liabilities and stockholders' equity	$ 16,967,584	$ 17,014,820

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CONDENSED CONSOLIDATED BALANCE SHEETS (parenthetical) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Allowance for doubtful accounts receivable, current	$ 41,144	$ 34,042
Common stock authorized (in shares)	3,999,000,000	3,999,000,000
Common stock par value (in dollars per share)	$ 0.01	$ 0.01
Common stock issued (in shares)	766,772,382	641,118,571
Common stock outstanding (in shares)	766,772,382	641,118,571
Mandatorily Redeemable Preferred Stock
Mandatorily redeemable preferred securities authorized (in shares)		1,000,000
Mandatorily redeemable preferred securities par value (in dollars per share)		$ 0.01
Mandatorily redeemable preferred securities issued (in shares)		750,000
Mandatorily redeemable preferred securities outstanding (in shares)		750,000

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands				3 Months Ended		9 Months Ended
	Aug. 08, 2018	May 09, 2018	Mar. 15, 2018	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Revenue				$ 1,148,316	$ 1,082,962	$ 3,396,223	$ 3,209,970
Cost of revenue (exclusive of depreciation and amortization shown separately below)				263,286	224,140	757,905	658,095
Selling, general and administrative expenses				295,119	284,137	922,627	923,048
Depreciation and intangible asset amortization				474,772	467,929	1,446,768	1,387,245
Merger, restructuring, integration, and other				(6,708)	14,505	1,770	54,170
Operating income				121,847	92,251	267,153	187,412
Interest expense, net				(152,405)	(184,369)	(501,217)	(553,529)
Loss on extinguishment of debt				(213,239)	0	(274,836)	(4,331)
Other income				552	22,960	29,374	35,965
Loss before income taxes				(243,245)	(69,158)	(479,526)	(334,483)
Income tax benefit				7,701	7,128	19,840	38,922
Net loss				$ (235,544)	$ (62,030)	$ (459,686)	$ (295,561)
Net loss per share:
Basic and diluted (in dollars per share)				$ (0.31)	$ (0.10)	$ (0.62)	$ (0.46)
Weighted-average number of shares:
Basic and diluted (in shares)				755,277	641,088	744,720	641,061
Cash dividends declared per common share (in dollars per share)	$ 0.035	$ 0.035	$ 0.035	$ 0.035	$ 0	$ 0.105	$ 1.170
Monitoring and Related Services
Revenue				$ 1,029,399	$ 1,012,292	$ 3,069,817	$ 3,017,026
Installation and Other
Revenue				$ 118,917	$ 70,670	$ 326,406	$ 192,944

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Statement of Comprehensive Income [Abstract]
Net loss	$ (235,544)	$ (62,030)	$ (459,686)	$ (295,561)
Other comprehensive income (loss), net of tax:
Change in fair value of cash flow hedges	8,621	0	6,332	0
Foreign currency translation and other	9,427	15,420	(17,225)	29,008
Total other comprehensive income (loss), net of tax	18,048	15,420	(10,893)	29,008
Comprehensive loss	$ (217,496)	$ (46,610)	$ (470,579)	$ (266,553)

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CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY - USD ($) $ in Thousands	Total	Common Stock	Additional Paid-In Capital	Accumulated Deficit	Accumulated Other Comprehensive Loss
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Adoption of accounting standard, net of tax	$ 34,430			$ 34,430
Beginning balance (in shares) at Dec. 31, 2017	641,118,571	641,119,000
Beginning balance at Dec. 31, 2017	$ 3,433,112	$ 2	$ 4,435,329	(998,212)	$ (4,007)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Common stock issued for initial public offering proceeds, net of related fees and tax benefit (in shares)		105,000,000
Common stock issued for initial public offering proceeds, net of related fees and tax benefit	1,406,706	$ 1,050	1,405,656
Other comprehensive loss, net of tax	(10,893)				(10,893)
Net loss	(459,686)			(459,686)
Dividends	(80,511)			(80,511)
Share-based compensation expense (in shares)		20,655,000
Share-based compensation expense	112,905		112,905
Other (in shares)		(2,000)
Other	$ (69)	$ 6,616	(6,610)	(75)
Ending balance (in shares) at Sep. 30, 2018	766,772,382	766,772,000
Ending balance at Sep. 30, 2018	$ 4,435,994	$ 7,668	$ 5,947,280	$ (1,504,054)	$ (14,900)

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
Cash flows from operating activities:
Net loss	$ (459,686)	$ (295,561)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and intangible asset amortization	1,446,768	1,387,245
Amortization of deferred subscriber acquisition costs	42,876	35,457
Amortization of deferred subscriber acquisition revenue	(56,381)	(31,470)
Share-based compensation expense	112,905	8,498
Deferred income taxes	(18,883)	(46,133)
Provision for losses on accounts receivable and inventory	43,948	42,322
Loss on extinguishment of debt	274,836	4,331
Other non-cash items, net	(1,920)	36,804
Changes in operating assets and liabilities, net of the effects of acquisitions:
Deferred subscriber acquisition costs	(135,777)	(122,225)
Deferred subscriber acquisition revenue	193,357	188,345
Other, net	(36,079)	54,727
Net cash provided by operating activities	1,405,964	1,262,340
Cash flows from investing activities:
Dealer generated customer accounts and bulk account purchases	(526,654)	(486,037)
Subscriber system assets	(428,292)	(445,201)
Capital expenditures	(94,151)	(102,671)
Acquisition of businesses, net of cash acquired	(48,473)	(31,810)
Other investing, net	13,550	16,549
Net cash used in investing activities	(1,084,020)	(1,049,170)
Cash flows from financing activities:
Proceeds from initial public offering, net of related fees	1,406,019	0
Proceeds from long-term borrowings	0	1,344,126
Repayment of long-term borrowings, including call premiums	(686,333)	(712,690)
Repayment of mandatorily redeemable preferred securities, including redemption premium	(852,769)	0
Dividends on common stock	(52,959)	(749,999)
Other financing	(1,441)	(11,023)
Net cash used in financing activities	(187,483)	(129,586)
Effect of currency translation on cash	(441)	61
Net increase in cash and cash equivalents and restricted cash and cash equivalents	134,020	83,645
Cash and cash equivalents and restricted cash and cash equivalents at beginning of period	126,782	90,893
Cash and cash equivalents and restricted cash and cash equivalents at end of period	$ 260,802	$ 174,538

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Basis of Presentation and Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2018

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation and Summary of Significant Accounting Policies

Nature of Business—ADT Inc. (“ADT Inc.”), a company incorporated in the state of Delaware, and its wholly owned subsidiaries (collectively, the “Company”), are principally engaged in the sale, installation, servicing, and monitoring of electronic security and automation solutions for homes and businesses in the United States (or “U.S.”) and Canada. Prior to September 2017, ADT Inc. was named Prime Security Services Parent, Inc. ADT Inc. is majority-owned by Prime Security Services TopCo Parent, L.P. (“Ultimate Parent”). Ultimate Parent is owned by Apollo Investment Fund VIII, L.P. and related funds that are directly or indirectly managed by Apollo Global Management, LLC, its subsidiaries, and its affiliates (“Apollo” or the “Sponsor”), and management investors.

Basis of Presentation—The condensed consolidated financial statements include the accounts of ADT Inc. and its wholly owned subsidiaries and have been prepared in U.S. dollars in accordance with generally accepted accounting principles in the United States of America (“GAAP”). The condensed consolidated financial statements included herein are unaudited, but in the opinion of management, such financial statements include all adjustments, consisting of normal recurring adjustments, necessary to summarize fairly the Company’s financial position, results of operations, and cash flows for the interim periods presented. The interim results reported in these condensed consolidated financial statements should not be taken as indicative of results that may be expected for future interim periods or the full year. For a more comprehensive understanding of the Company and its interim results, these condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2017, which was filed with the U.S. Securities and Exchange Commission (“SEC”) on March 15, 2018.

The Condensed Consolidated Balance Sheet as of December 31, 2017 included herein was derived from the audited consolidated financial statements as of that date but does not include all the footnote disclosures from the annual financial statements.

The Company conducts business through its operating entities and reports financial and operating information in one segment. All intercompany transactions have been eliminated. The results of companies acquired are included in the condensed consolidated financial statements from the effective dates of the acquisitions.

Reclassifications—Certain prior period amounts have been reclassified to conform with the current period presentation.

Use of Estimates—The preparation of financial statements in accordance with GAAP requires management to make estimates and judgments that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities, and reported amounts of revenue and expenses. Significant estimates and judgments inherent in the preparation of the condensed consolidated financial statements include, but are not limited to, estimates of future cash flows and valuation-related assumptions associated with asset impairment testing and the valuation of certain intangible and tangible assets and liabilities in connection with the acquisition of businesses, useful lives and methods for depreciation and amortization, loss contingencies, and income taxes and tax valuation allowances. Actual results could differ materially from these estimates.

Stock Split—On January 4, 2018, the board of directors of the Company declared a 1.681-for-1 stock split (“Stock Split”) of the Company’s common stock issued and outstanding as of January 4, 2018. Unless otherwise noted, all share and per-share data included in these condensed consolidated financial statements have been adjusted to give effect to the Stock Split. In addition, the number of shares subject to, and the exercise price of, the Company’s outstanding options were adjusted to reflect the Stock Split.

Initial Public Offering—In January 2018, the Company completed its initial public offering (“IPO”) in which the Company issued and sold 105,000,000 shares of common stock at an initial public offering price of $14.00 per share. The Company received net proceeds of $1,406 million, after deducting underwriting discounts, commissions, and offering expenses, from the sale of its shares in the IPO. Upon consummation of the IPO, the Company’s common stock began trading on the New York Stock Exchange under the symbol “ADT.”

On February 21, 2018, the Company used approximately $649 million of the net proceeds from the IPO to voluntarily redeem $594 million aggregate principal amount of 9.250% Second-Priority Senior Secured Notes due 2023 (“Prime Notes”) and pay the related call premium. The aggregate principal amount of Prime Notes outstanding after the repayment was $2,546 million. Refer to Note 5 “Debt” for further discussion.

In connection with the IPO, the Company deposited $750 million of the net proceeds from the IPO into a segregated account (“Segregated Account”) for the purpose of redeeming the 750,000 shares of Series A $0.01 par value preferred securities (“Koch Preferred Securities”) at a future date. On July 2, 2018, the Company redeemed in full the original stated value of $750 million of the Koch Preferred Securities for total consideration of approximately $949 million, which included $103 million related to the

payment of the redemption premium, including tax reimbursements, and $96 million related to the accumulated dividend obligation on the Koch Preferred Securities (“Koch Redemption”). The Koch Redemption was funded with amounts in the Segregated Account and cash on hand. Refer to Note 6 “Mandatorily Redeemable Preferred Securities” for further discussion.

Merger, Restructuring, Integration, and Other—Included in merger, restructuring, integration, and other in the Condensed Consolidated Statements of Operations are certain direct and incremental costs resulting from acquisitions made by the Company, certain related integration efforts as a result of those acquisitions, costs related to the Company’s restructuring efforts, as well as fair value remeasurements and impairment charges on certain of the Company’s strategic investments.

Loss on Extinguishment of Debt—Included in loss on extinguishment of debt in the Condensed Consolidated Statements of Operations for the quarter and nine months ended September 30, 2018 is approximately $213 million associated with the Koch Redemption in July 2018 primarily related to the payment of the redemption premium and tax reimbursements, as well as the write-off of unamortized discount and deferred financing costs. Loss on extinguishment of debt for the nine months ended September 30, 2018 also includes approximately $62 million associated with the partial redemption of the Prime Notes in February 2018 primarily related to the payment of the call premium, as well as the write-off of a portion of the unamortized deferred financing costs. For the quarter and nine months ended September 30, 2017, loss on extinguishment of debt was not material. Refer to Note 6 “Mandatorily Redeemable Preferred Securities” and Note 5 “Debt” for further discussion.

Other Income—Included in other income for the nine months ended September 30, 2018 is approximately $22 million of licensing fees, as well as a gain of $7.5 million from the sale of equity in a third party that the Company received as part of a settlement, as described below. Other income for the quarter ended September 30, 2018 was not material.

For the quarter and nine months ended September 30, 2017, other income primarily includes foreign currency gains and losses from the translation of monetary assets and liabilities that are denominated in Canadian dollars related to intercompany loans. During the first quarter of 2018, the Company designated certain of these intercompany loans to be of a long-term-investment nature and began recognizing the related foreign currency gains and losses in accumulated other comprehensive loss in the Condensed Consolidated Balance Sheet.

Subscriber System Assets, Net—Capitalized equipment and installation costs incurred in connection with transactions in which the Company retains ownership of the security systems are included in subscriber system assets, net in the Condensed Consolidated Balance Sheets. Depreciation expense relating to subscriber system assets is included in depreciation and intangible asset amortization in the Condensed Consolidated Statements of Operations. The following tables set forth the gross carrying amounts, accumulated depreciation, and depreciation expense relating to subscriber system assets for the periods presented.

(in thousands)	September 30, 2018			December 31, 2017
Gross carrying amount	$	4,170,741		$	3,762,905
Accumulated depreciation	(1,264,182		)	(870,222		)
Subscriber system assets, net	$	2,906,559		$	2,892,683

	For the Quarters Ended				For the Nine Months Ended
(in thousands)	September 30, 2018		September 30, 2017		September 30, 2018		September 30, 2017
Subscriber system assets depreciation expense	$	137,488	$	135,055	$	410,236	$	401,275

Accrued Expenses and Other Current Liabilities—Accrued expenses and other current liabilities as of September 30, 2018 and December 31, 2017 consist of the following:

(in thousands)	September 30, 2018		December 31, 2017
Accrued interest	$	144,886	$	91,592
Payroll-related accruals	77,944		94,501
Other accrued liabilities	221,742		165,247
Accrued expenses and other current liabilities	$	444,572	$	351,340

Financial Instruments—The Company’s financial instruments primarily consist of cash and cash equivalents, restricted cash and cash equivalents, accounts receivable, accounts payable, debt, preferred securities, and derivative financial instruments. Due to their short-term and/or liquid nature, the fair values of cash and cash equivalents, restricted cash and cash equivalents, accounts receivable, and accounts payable approximated their respective carrying values.

Cash Equivalents—Included in cash and cash equivalents are investments in money market mutual funds, which totaled $136 million and $51 million as of September 30, 2018 and December 31, 2017, respectively. These investments are classified as Level 1 for purposes of fair value measurement.

Restricted Cash and Cash Equivalents—Restricted cash and cash equivalents are restricted for a specific purpose and cannot be included in the general cash account. Restricted cash and cash equivalents are included in prepaid expenses and other current assets in the Condensed Consolidated Balance Sheets and were not material as of September 30, 2018 and December 31, 2017.

Long-Term Debt Instruments—The fair values of the Company’s long-term debt instruments are determined using broker-quoted market prices, which are considered Level 2 inputs. The carrying amount of debt outstanding, if any, under the Company’s revolving credit facilities approximates fair value as interest rates on these borrowings approximate current market rates and are considered Level 2 inputs.

The carrying value and fair value of the Company’s long-term debt instruments that are subject to fair value disclosures as of September 30, 2018 and December 31, 2017 are as follows:

	September 30, 2018				December 31, 2017
(in thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Debt instruments, excluding capital lease obligations	$	9,532,794	$	9,840,892	$	10,128,020	$	10,868,626

Koch Preferred Securities—As stated above, the Company redeemed the Koch Preferred Securities in full on July 2, 2018.

As of December 31, 2017, the Koch Preferred Securities had a carrying value and fair value of $682 million and $925 million, respectively. The fair value was estimated using a discounted cash-flow approach in conjunction with a binomial lattice interest rate model to incorporate the contractual dividends and the Company’s ability to redeem the Koch Preferred Securities. Key input assumptions to the valuation analysis included the credit spread, yield volatility, and expected time to redemption, which are considered Level 3 inputs. The credit spread was estimated using the credit spread at issuance of the Koch Preferred Securities and adjusted for the change in observed publicly traded debt of the Company between the issuance date and the measurement date. The yield volatility estimate was based on the historical yield volatility observed from comparable public high yield debt. The expected time to redemption was based on the Company’s expectations.

Refer to Note 6 “Mandatorily Redeemable Preferred Securities” for further discussion.

Derivative Financial Instruments—Derivative financial instruments are reported at fair value as either assets or liabilities in the Condensed Consolidated Balance Sheets. For derivative instruments that qualify for hedge accounting, changes in fair values are recognized in accumulated other comprehensive loss in the Condensed Consolidated Balance Sheets. For derivative instruments for which the Company does not apply hedge accounting, changes in fair values are recognized in the Condensed Consolidated Statements of Operations according to the nature of the hedged items. During the quarters and nine months ended September 30, 2018 and 2017, changes in fair values of the Company’s derivative instruments were not material. Refer to Note 9 “Derivative Financial Instruments” for further discussion.

Guarantees—In the normal course of business, the Company is liable for contract completion and product performance. The Company does not believe such obligations will significantly affect its financial position, results of operations, or cash flows. As of September 30, 2018 and December 31, 2017, the Company had no material guarantees other than $55 million and $54 million, respectively, primarily in standby letters of credit related to its insurance programs.

Settlements—In January 2018, the Company received $10 million in connection with a litigation settlement, which is reflected as a benefit to selling, general and administrative expenses in the Condensed Consolidated Statement of Operations for the nine months ended September 30, 2018.

In February 2018, the Company entered into a settlement agreement (“February 2018 Settlement Agreement”), the terms of which entitled the Company to receive $7.5 million of non-cash compensation in the form of an equity interest in the counterparty to the agreement (“Counterparty”), which the Company reflected as a benefit to selling, general and administrative expenses during the first quarter of 2018. Additionally, the February 2018 Settlement Agreement entitled the Company to receive $24 million in licensing fees over a forty-eight-month period.

In the second quarter of 2018, the Counterparty was acquired by a third party. The terms of the acquisition entitled the Company to approximately $15 million in exchange for the Company’s equity interest in the Counterparty. The Company received approximately $12 million in cash associated with the sale of this equity interest during the second quarter of 2018, and recognized a gain of $7.5 million, which is reflected in other income in the Condensed Consolidated Statements of Operations. Additionally, as a result of the Counterparty’s acquisition, the Company concluded that amounts due under the license arrangement were probable

to be collected. Therefore, the Company recognized a benefit of $22 million associated with the license arrangement, which is discounted to reflect a significant financing component and is reflected in other income in the Condensed Consolidated Statements of Operations.

Hurricanes—The Company evaluates the potential financial and business impacts that hurricanes or other natural disasters may have on its business and operations. In the second half of 2017, there were three hurricanes impacting areas in which the Company operates that resulted in power outages and service disruptions to certain customers of the Company. As of September 30, 2018, the Company determined that the financial impact from these hurricanes, as well as others that occurred during 2018, was not material.

Recently Adopted Accounting Pronouncements—In May 2014, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance that sets forth a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The Company adopted this new standard and its related amendments effective on January 1, 2018 using the modified retrospective transition method, whereby the cumulative effect of initially applying the new standard is recognized as an adjustment to the opening balance of stockholders’ equity. Results for reporting periods beginning on or after January 1, 2018 are presented under this new standard, while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for the prior period.

The largest impact from the new standard relates to the timing of recognition of certain incremental selling costs associated with acquiring new customers. Under the new standard, certain costs previously amortized over the initial contract term will now be amortized in pools based on the expected life of a customer relationship using an accelerated method over 15 years. To a lesser extent, the adoption of the new standard impacted the identification of performance obligations and the allocation of transaction price to those performance obligations for certain sales of security systems sold outright to customers.

As of January 1, 2018, due to the cumulative impact of adopting this new standard, the Company recorded a net increase to the opening balance of stockholders’ equity of $34 million, which is net of tax of $12 million. The impact to the line items in the Condensed Consolidated Balance Sheet was as follows:

	Balance at December 31, 2017			Revenue Standard Adoption Adjustment		Balance at January 1, 2018
(in thousands)
Assets
Prepaid expenses and other current assets	$	77,241		$	6,615	$	83,856
Deferred subscriber acquisition costs, net	282,478			33,380		315,858
Other assets	123,967			6,321		130,288
Liabilities
Deferred tax liabilities	1,376,708			11,886		1,388,594
Stockholders' equity
Accumulated deficit	(998,212		)	34,430		(963,782		)

Refer to Note 2 “Revenue” for further discussion related to the impact of adopting this standard.

In January 2016, the FASB issued authoritative guidance related to the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. Under the new guidance, equity investments with readily determinable fair values, except those accounted for under the equity method, will be measured at fair value with changes in fair value recognized in earnings. Equity investments that do not have readily determinable fair values may be measured at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. In addition, this update clarifies the guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from the unrealized losses on certain debt securities. The Company adopted this guidance effective on January 1, 2018. Fair value remeasurements on strategic investments and other equity investments are reflected in operating expenses and other income/expense, respectively, in the Condensed Consolidated Statements of Operations. The adoption of this guidance did not have a material impact to the condensed consolidated financial statements.

In November 2016, the FASB issued authoritative guidance amending the presentation of restricted cash within the statement of cash flows. The new guidance requires amounts generally described as restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The Company adopted this guidance effective on January 1, 2018 using the retrospective transition method for all periods presented in the Condensed Consolidated Statements of Cash Flows. The following table provides

a reconciliation of the amount of cash and cash equivalents and restricted cash and cash equivalents reported within the Condensed Consolidated Balance Sheets to the total of the same such amounts shown in the Condensed Consolidated Statements of Cash Flows:

(in thousands)	September 30, 2018		December 31, 2017
Cash and cash equivalents	$	256,917	$	122,899
Restricted cash and cash equivalents in prepaid expenses and other current assets	3,885		3,883
Cash and cash equivalents and restricted cash and cash equivalents at end of period	$	260,802	$	126,782

In May 2017, the FASB issued authoritative guidance that addresses changes to the terms or conditions of a share-based payment award, specifically regarding which changes to the terms or conditions of a share-based payment award would require modification accounting. This guidance does not change the accounting for modifications but clarifies that an entity should apply modification accounting except when the fair value, vesting conditions, and classification of the modified award are the same as the original award immediately before the modification. The Company adopted this guidance effective on January 1, 2018 and applied the guidance prospectively to share-based payment award modifications subsequent to the date of adoption. The adoption of this guidance did not have a material impact to the condensed consolidated financial statements. Refer to Note 10 “Share-based Compensation” for further discussion.

In August 2017, the FASB issued authoritative guidance which simplifies the application of hedge accounting standards to better portray the economic results of risk management activities in the financial statements. The guidance aligns the recognition and presentation of the effects of hedging instruments with the hedged items in the financial statements and includes certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness at inception and on an ongoing basis. The guidance also eliminates the requirement to measure and disclose the ineffective portion of the change in fair value of cash flow hedges. The Company elected to early adopt this guidance in the second quarter of 2018, and applied the guidance to qualified hedging instruments entered into subsequent to the date of adoption. The Company did not have any derivative instruments classified as hedging instruments prior to the date of adoption. The adoption of this guidance did not have a material impact to the condensed consolidated financial statements. Refer to Note 9 “Derivative Financial Instruments” for further discussion.

In June 2018, the FASB issued authoritative guidance related to the accounting for non-employee share-based compensation transactions, which aligns the guidance for share-based payment transactions for acquiring goods and services from non-employees, with certain exceptions, with the guidance for share-based compensation for employees. The Company elected to early adopt this guidance in the third quarter of 2018. The adoption of this guidance did not have a material impact to the condensed consolidated financial statements.

Recently Issued Accounting Pronouncements—In February 2016, the FASB issued authoritative guidance on accounting for leases. This new guidance, and related amendments, requires lessees to recognize a right-to-use asset and a lease liability for substantially all leases, and to disclose key information about leasing arrangements. The recognition, measurement, and presentation of expenses and cash flows for lessees will remain significantly unchanged from current guidance. This guidance is effective for all public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and will be effective for the Company in the first quarter of 2019. Early adoption is permitted. The guidance requires that a company adopt the standard using a modified retrospective approach, however, recent amendments allow for an alternative transition method whereby a company can apply this new guidance at the adoption date and recognize the cumulative effect of adoption as an adjustment to the opening balance of stockholders’ equity. The Company is currently evaluating the transition method, use of practical expedients, and impact of this guidance.

In January 2017, the FASB issued authoritative guidance to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. This guidance will be effective for the Company for annual or any interim goodwill impairment tests beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests.

In August 2018, the FASB issued authoritative guidance to align the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is classified as a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and will be effective for the Company in the first quarter of 2020. Early adoption is permitted. Companies may apply this guidance either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is currently evaluating the impact of this guidance.

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Revenue

9 Months Ended

Sep. 30, 2018

Revenue from Contract with Customer [Abstract]

Revenue

Revenue

The Company generates revenue primarily through contractual monthly recurring fees received for monitoring and related services provided to customers. In transactions in which the Company provides monitoring and related services but maintains ownership of the security systems, the Company’s performance obligations primarily include monitoring, related services (such as maintenance agreements), and a material right associated with the non-refundable fees received in connection with the initiation of a monitoring contract (referred to as deferred subscriber acquisition revenue) that the customer will not need to pay upon a renewal of the contract. The portion of the transaction price associated with monitoring and related services revenue is recognized as those services are provided and is reflected in monitoring and related services revenue in the Condensed Consolidated Statements of Operations.

Deferred subscriber acquisition revenue is deferred and reported as deferred subscriber acquisition revenue in the Condensed Consolidated Balance Sheets upon initiation of a monitoring contract. Deferred subscriber acquisition revenue is amortized into installation and other revenue in the Condensed Consolidated Statements of Operations over the estimated life of the customer relationship using an accelerated method. Amortization of deferred subscriber acquisition revenue was $21 million and $56 million for the quarter and nine months ended September 30, 2018, respectively.

In transactions involving security systems that are sold outright to customers, the Company’s performance obligations include monitoring, related services, and the sale and installation of the security systems. For such arrangements, the Company allocates a portion of the transaction price to each performance obligation based on a relative standalone selling price. Revenue associated with the sale and installation of security systems is recognized once installation is complete and is reflected in installation and other revenue in the Condensed Consolidated Statements of Operations. Revenue associated with monitoring and related services is recognized as those services are provided and is reflected in monitoring and related services revenue in the Condensed Consolidated Statements of Operations.

Early termination of the contract by the customer results in a termination charge in accordance with the contract terms. Contract termination charges are recognized in monitoring and related services revenue in the Condensed Consolidated Statements of Operations when collectability is probable. Amounts collected from customers for sales and other taxes are reported net of the related amounts remitted.

The Company incurs certain incremental contract costs (referred to as deferred subscriber acquisition costs), including selling expenses (primarily commissions), related to acquiring customers, which are included in deferred subscriber acquisition costs, net in the Condensed Consolidated Balance Sheets. Commissions paid in connection with acquiring customers are determined based on the value of the contractual fees. Amortization of deferred subscriber acquisition costs was $16 million and $43 million for the quarter and nine months ended September 30, 2018, respectively. Contract assets associated with outright sales are not material.

Customer billings for services not yet rendered are deferred and recognized as revenue as services are provided. These fees are recorded as current deferred revenue in the Condensed Consolidated Balance Sheets as the Company expects to satisfy any remaining performance obligations, as well as recognize the related revenue, within twelve months. Accordingly, the Company has applied the practical expedient regarding deferred revenue to exclude the value of remaining performance obligations if (i) the contract has an original expected term of one year or less or (ii) the Company recognizes revenue in proportion to the amount it has the right to invoice for services performed.

The impact from the adoption of the new revenue standard on the Company’s condensed consolidated financial statements as of and for the quarter and nine months ended September 30, 2018 was as follows:

	For the Quarter Ended September 30, 2018									For the Nine Months Ended September 30, 2018
	As Reported			Balances without Adoption of Standard			Effect of Adoption Increase / (Decrease)			As Reported			Balances without Adoption of Standard			Effect of Adoption Increase / (Decrease)
Statements of Operations (in thousands)
Monitoring and related services	$	1,029,399		$	1,031,006		$	(1,607	)	$	3,069,817		$	3,074,260		$	(4,443	)
Installation and other	118,917			117,288			1,629			326,406			320,635			5,771
Total revenue	1,148,316			1,148,294			22			3,396,223			3,394,895			1,328
Cost of revenue (exclusive of depreciation and amortization shown separately below)	263,286			263,286			—			757,905			757,905			—
Selling, general and administrative expenses(1)	295,119			302,039			(6,920		)	922,627			943,010			(20,383		)
Depreciation and intangible asset amortization	474,772			474,772			—			1,446,768			1,446,768			—
Merger, restructuring, integration, and other	(6,708		)	(6,708		)	—			1,770			1,770			—
Operating income	121,847			114,905			6,942			267,153			245,442			21,711
Interest expense, net	(152,405		)	(152,405		)	—			(501,217		)	(501,217		)	—
Loss on extinguishment of debt	(213,239		)	(213,239		)	—			(274,836		)	(274,836		)	—
Other income	552			552			—			29,374			29,374			—
Loss before income taxes	(243,245		)	(250,187		)	6,942			(479,526		)	(501,237		)	21,711
Income tax benefit	7,701			9,123			(1,422		)	19,840			24,703			(4,863		)
Net loss	$	(235,544	)	$	(241,064	)	$	5,520		$	(459,686	)	$	(476,534	)	$	16,848

_________________

(1) For the quarter and nine months ended September 30, 2018, the effect of adoption includes approximately $5 million and $14 million, respectively, associated with non-cash amortization expense of deferred subscriber acquisition costs.

	As Reported			Balances without Adoption of Standard			Effect of Adoption Increase / (Decrease)
Balance Sheet (in thousands)
Assets
Prepaid expenses and other current assets	$	107,364		$	98,851		$	8,513
Deferred subscriber acquisition costs, net	400,946			346,067			54,879
Other assets	148,242			143,607			4,635
Liabilities
Deferred tax liabilities	1,370,142			1,353,393			16,749
Stockholders' equity
Accumulated deficit	(1,504,054		)	(1,555,332		)	51,278

Disaggregated Revenue

The following table sets forth the Company’s revenues disaggregated by source:

(in thousands)	For the Quarter Ended September 30, 2018		For the Nine Months Ended September 30, 2018
Monitoring and related services	$	1,029,399	$	3,069,817
Installation and other	118,917		326,406
Total revenue	$	1,148,316	$	3,396,223

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Acquisitions

9 Months Ended

Sep. 30, 2018

Business Combinations [Abstract]

Acquisitions

Acquisitions

From time to time, the Company may pursue acquisitions of companies that either strategically fit with the Company’s existing core business or expand the Company’s electronic security and automation solutions in new and attractive adjacent markets. The Company acquired four businesses during the nine months ended September 30, 2018, and paid $48 million, net of cash acquired. In addition, the Company recorded preliminary amounts of approximately $23 million of goodwill and approximately $20 million of customer relationships in the Condensed Consolidated Balance Sheet related to these acquisitions.

Dealer Generated Customer Accounts and Bulk Account Purchases

The Company paid $527 million and $486 million for customer contracts for electronic security services generated through the Company’s network of authorized dealers (“ADT Authorized Dealer Program”) and bulk account purchases during the nine months ended September 30, 2018 and 2017, respectively. These contracts are reported in the Condensed Consolidated Balance Sheets as intangible assets, net, and are recorded at their contractually determined purchase price.

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Goodwill and Other Intangible Assets

9 Months Ended

Sep. 30, 2018

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Other Intangible Assets

Goodwill and Other Intangible Assets

Goodwill

There were no material changes in the carrying amount of goodwill during the nine months ended September 30, 2018.

Other Intangible Assets

The following table sets forth the gross carrying amounts, accumulated amortization, and net carrying amounts of the Company’s other intangible assets as of September 30, 2018 and December 31, 2017:

	September 30, 2018							December 31, 2017
(in thousands)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Definite-lived intangible assets:
Contracts and related customer relationships	$	7,284,196	$	(2,545,113	)	$	4,739,083	$	6,748,355	$	(1,749,327	)	$	4,999,028
Dealer relationships	1,603,490		(209,915		)	1,393,575		1,605,910		(146,299		)	1,459,611
Other	196,898		(174,438		)	22,460		195,363		(130,227		)	65,136
Total definite-lived intangible assets	9,084,584		(2,929,466		)	6,155,118		8,549,628		(2,025,853		)	6,523,775
Indefinite-lived intangible assets:
Trade name	1,333,000		—			1,333,000		1,333,000		—			1,333,000
Intangible assets	$	10,417,584	$	(2,929,466	)	$	7,488,118	$	9,882,628	$	(2,025,853	)	$	7,856,775

For the nine months ended September 30, 2018, the changes in the net carrying amount of contracts and related customer relationships were as follows:

(in thousands)
Balance as of December 31, 2017	$	4,999,028
Acquisition of customer relationships	20,246
Customer contract additions, net of dealer charge-backs	525,729
Amortization	(798,267		)
Currency translation and other	(7,653		)
Balance as of September 30, 2018	$	4,739,083

During the nine months ended September 30, 2018, the weighted-average amortization period for customer contract additions primarily purchased through the ADT Authorized Dealer Program was 15 years. Amortization expense for definite-lived intangible assets for the periods presented was as follows:

	For the Quarters Ended				For the Nine Months Ended
(in thousands)	September 30, 2018		September 30, 2017		September 30, 2018		September 30, 2017
Definite-lived intangible asset amortization expense	$	293,535	$	292,023	$	906,233	$	864,918

The estimated aggregate amortization expense for definite-lived intangible assets is expected to be as follows:

(in thousands)
Remainder of 2018	$	295,632
2019	1,143,309
2020	1,089,492
2021	987,260
2022	640,412
2023	284,929

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Debt

9 Months Ended

Sep. 30, 2018

Debt Disclosure [Abstract]

Debt

Debt

First Lien Credit Agreement Amendment

On March 16, 2018, the Company entered into an Incremental Assumption and Amendment Agreement No. 6 (“2018 First Lien Credit Agreement Amendment”), which further amended and restated the First Lien Credit Agreement (the First Lien Credit Agreement, as amended, restated, supplemented, or otherwise waived prior to the effective date of the 2018 First Lien Credit Agreement Amendment (“Existing Credit Agreement”) and, as amended by the 2018 First Lien Credit Agreement Amendment (“Amended and Restated Credit Agreement”)).

Prior to the effectiveness of the 2018 First Lien Credit Agreement Amendment, the Existing Credit Agreement included a revolving credit facility of $255 million maturing on May 2, 2021, and a revolving credit facility of $95 million maturing on July 1, 2020. In connection with the 2018 First Lien Credit Agreement Amendment, the existing revolving credit facilities were replaced with a first lien revolving credit facility with an aggregate commitment of up to $350 million maturing on March 16, 2023, subject to the repayment, extension, or refinancing with longer maturity debt of certain of the Company’s other indebtedness (“2023 Revolving Credit Facility”). Borrowings under the 2023 Revolving Credit Facility will bear interest at a rate equal to, at the Company’s option, either (a) a London Interbank Offered Rate (“LIBOR”) determined by reference to the costs of funds for Eurodollar deposits for the interest period relevant to such borrowing, adjusted for certain additional costs, or (b) a base rate determined by reference to the highest of (i) the federal funds rate plus 0.50% per annum, (ii) the prime rate of Barclays Bank PLC, and (iii) one-month adjusted LIBOR plus 1.00% per annum, in each case, plus the applicable margin of 2.75% for LIBOR loans and 1.75% for base rate loans. The applicable margin for borrowings under the 2023 Revolving Credit Facility is subject to one step-down based on a certain specified net first lien leverage ratio.

In addition, the Amended and Restated Credit Agreement requires the Company to pay a commitment fee between 0.375% and 0.50% (determined based on a net first lien leverage ratio) in respect of the unused commitments under the 2023 Revolving Credit Facility.

The term loan facilities under the Amended and Restated Credit Agreement continue to have the same terms as provided under the Existing Credit Agreement. Additionally, the parties to the Amended and Restated Credit Agreement continue to have the same obligations set forth in the Existing Credit Agreement.

The impact to the condensed consolidated financial statements as a result of the 2018 First Lien Credit Agreement Amendment was not material.

As of September 30, 2018, the Company had $350 million in available borrowing capacity under its 2023 Revolving Credit Facility.

Prime Notes

On February 21, 2018, the Company used approximately $649 million of the net proceeds from the IPO to voluntarily redeem $594 million aggregate principal amount of the Prime Notes and pay the related call premium. The Company recognized

a loss on extinguishment of debt of approximately $62 million related to the call premium and the write-off of a portion of the unamortized deferred financing costs. The aggregate principal amount of Prime Notes outstanding after the repayment was $2,546 million.

See Note 1 “Basis of Presentation and Summary of Significant Accounting Policies” for further discussion on the fair value of the Company’s debt.

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Mandatorily Redeemable Preferred Securities

9 Months Ended

Sep. 30, 2018

Other Liabilities Disclosure [Abstract]

Mandatorily Redeemable Preferred Securities

Mandatorily Redeemable Preferred Securities

In connection with the acquisition of The ADT Security Corporation (formerly named The ADT Corporation) (“The ADT Corporation”), the Company issued 750,000 shares of the Koch Preferred Securities to an affiliate of Koch Industries, Inc. (“Koch Investor”). In January 2018, in connection with the IPO, the Company deposited $750 million of the net proceeds from the IPO into the Segregated Account for the purpose of redeeming the Koch Preferred Securities at a future date. In May 2018, the Company entered into a written consent with the Koch Investor (“May 2018 Consent”), whereby the Company agreed to redeem all of the outstanding Koch Preferred Securities, which occurred on July 2, 2018.

Prior to redemption, the Koch Preferred Securities accrued and accumulated preferential cumulative dividends in arrears on the then current stated value of the Koch Preferred Securities. Dividends were payable quarterly, in cash, at a rate equal to the daily five-year treasury rate plus 9.00% per annum. In the event that dividends for any quarter were not paid in cash, dividends for such quarter would accrue and accumulate at a rate equal to the daily five-year treasury rate plus 9.75% per annum and would be added to the then current stated value of the Koch Preferred Securities at the end of such quarter.

The quarterly dividend obligation on the Koch Preferred Securities is reflected in interest expense, net in the Condensed Consolidated Statements of Operations. Beginning in the third quarter of 2017, in lieu of declaring and paying the dividend obligation on the Koch Preferred Securities, the Company elected to increase the accumulated stated value of such securities, which increased the reported balance of mandatorily redeemable preferred securities on the Condensed Consolidated Balance Sheet. Prior to the Koch Redemption, the reported balance of mandatorily redeemable preferred securities on the Condensed Consolidated Balance Sheet reflected approximately $96 million associated with the dividend obligation on the Koch Preferred Securities, of which approximately $51 million related to the dividend obligation on the Koch Preferred Securities for the nine months ended September 30, 2018. For the quarter and nine months ended September 30, 2017, the dividend obligation on the Koch Preferred Securities was $22 million and $63 million, respectively.

On July 2, 2018, the Company redeemed in full the original stated value of $750 million of the Koch Preferred Securities for total consideration of approximately $949 million, which included approximately $103 million related to the redemption premium and tax reimbursements, as well as $96 million related to the accumulated dividend obligation on the Koch Preferred Securities. The Koch Redemption was funded with amounts in the Segregated Account and cash on hand. During the quarter and nine months ended September 30, 2018, the Company recognized a loss on extinguishment of debt of $213 million associated with the payment of the redemption premium, including tax reimbursements, and the write-off of unamortized discount and deferred financing costs.

Refer to Note 1 “Basis of Presentation and Summary of Significant Accounting Policies” for further discussion on the fair value of the Koch Preferred Securities.

Koch Agreements

Prior to the consummation of the IPO, the Company, Prime Security Services TopCo Parent GP, LLC, as the general partner of Ultimate Parent, Ultimate Parent, and the Koch Investor entered into an Amended and Restated Series A Investor Rights Agreement, which was amended and restated by the Second Amended and Restated Series A Investor Rights Agreement (“Investor Rights Agreement”), which contained certain designations, rights, preferences, powers, restrictions, and limitations that could require the Company to redeem all or a portion of the Koch Preferred Securities or require that the Company obtain the consent of the holders of a majority of the Koch Preferred Securities before taking certain actions or entering into certain transactions.

While the certificate of designation of the Koch Preferred Securities restricted the Company from paying dividends on its common stock, the Koch Investor consented in January 2018 to a one-time distribution on or before June 30, 2018, not to exceed $50 million, which the Company used to declare a dividend on its common stock on March 15, 2018. Further, in the May 2018 Consent, the Koch Investor consented to an additional one-time distribution in an aggregate amount not to exceed $27 million, which the Company used to declare a dividend on its common stock on May 9, 2018.

Following the Koch Redemption, the Investor Rights Agreement was automatically terminated in accordance with its terms.

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Income Taxes

9 Months Ended

Sep. 30, 2018

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Unrecognized Tax Benefits

During the quarter ended September 30, 2018, the Company had a net increase to its unrecognized tax benefits of $13 million primarily related to tax attributes from the Company’s pre-Separation from Tyco (as defined in Note 8) tax returns. The Company’s unrecognized tax benefits relate to tax years that remain subject to audit by the taxing authorities in the U.S. federal, state and local, and foreign jurisdictions. Based on the current status of its income tax audits, the Company does not believe that a significant portion of its unrecognized tax benefits will be resolved in the next twelve months.

Effective Tax Rate

The Company’s income tax benefit for the quarter and nine months ended September 30, 2018 was $8 million and $20 million, respectively, resulting in an effective tax rate of 3.2% and 4.1%, respectively. The effective tax rates for the quarter and nine months ended September 30, 2018 reflect the reduced federal income tax rate of 21.0% as a result of the Tax Cuts and Jobs Act (“Tax Reform”).

The effective tax rate for the quarter ended September 30, 2018 also reflects an 11.2% unfavorable impact of permanent non-deductible expenses primarily associated with the Koch Preferred Securities, a 5.6% unfavorable impact from an increase in the Company’s unrecognized tax benefits, and a 4.9% unfavorable impact from state legislative changes.

The effective tax rate for the nine months ended September 30, 2018 also reflects an 11.6% unfavorable impact of permanent non-deductible expenses primarily associated with the Koch Preferred Securities, a 7.3% unfavorable impact of future non-deductible share-based compensation, and a 4.2% unfavorable impact from state legislative changes, offset by a 5.6% favorable impact from tax adjustments related to prior year state returns filed in the first quarter of 2018.

The Company’s income tax benefit for the quarter and nine months ended September 30, 2017 was $7 million and $39 million, respectively, resulting in an effective tax rate of 10.3% and 11.6%, respectively. The effective tax rates for the quarter and nine months ended September 30, 2017 primarily reflect the impact of an increase in the Company’s unrecognized tax benefits related to income tax positions primarily associated with prior years, including pre-Separation from Tyco tax years, the impact of legislative changes, an increase in the Company’s valuation allowance for certain deferred tax assets, and the impact of permanent non-deductible expenses.

The effective tax rates reflect the tax impact of permanent items, state tax expense, changes in tax laws, and non-U.S. net earnings. The effective tax rate can vary from period to period due to permanent tax adjustments, discrete items such as the settlement of income tax audits and changes in tax laws, as well as recurring factors such as changes in the overall effective state tax rate.

Tax Reform

In connection with Tax Reform, the SEC issued Staff Accounting Bulletin No. 118 that allows companies to record provisional estimates of the effects of the legislative change and a one-year measurement period to finalize the accounting of those effects. During the quarter and nine months ended September 30, 2018, the Company did not record any significant measurement period adjustments to the provisional amounts recorded in the 2017 consolidated financial statements. The Company expects to complete the accounting for the impact of Tax Reform by the end of 2018.

Further, in accounting for the impacts of tax on ‘global intangible low taxed income’ (“GILTI”), the Company elected to treat the impact of GILTI as a period cost in each year incurred.

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2018

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

Purchase Obligations

As of September 30, 2018, there have been no material changes to the Company’s purchase obligations outside the ordinary course of business as compared to December 31, 2017.

Legal Proceedings

The Company is subject to various claims and lawsuits in the ordinary course of business, including from time to time, contractual disputes, employment matters, product and general liability claims, claims that the Company has infringed on the

intellectual property rights of others, claims related to alleged security system failures, and consumer and employment class actions. In the ordinary course of business, the Company is also subject to regulatory and governmental examinations, information requests and subpoenas, inquiries, investigations, and threatened legal actions and proceedings. In connection with such formal and informal inquiries, the Company receives numerous requests, subpoenas, and orders for documents, testimony, and information in connection with various aspects of its activities. The Company has recorded accruals for losses that it believes are probable to occur and are reasonably estimable. While the ultimate outcome of these matters cannot be predicted with certainty, the Company believes that the resolution of any such proceedings (other than matters specifically identified below), will not have a material adverse effect on its financial position, results of operations, or cash flows.

Environmental Matters

On October 25, 2013, ADT was notified by subpoena that the Office of the Attorney General of California, in conjunction with the Alameda County District Attorney, is investigating whether certain of ADT’s electronic waste disposal policies, procedures, and practices are in violation of the California Business and Professions Code and the California Health and Safety Code.  During 2016, Protection One was also notified by the same parties that it was subject to a similar investigation. Both the Protection One and ADT investigations are ongoing and the Company is attempting to coordinate joint handling of both investigations and is cooperating fully with the respective authorities.

Wireless Encryption Litigation

The Company is subject to five class action claims regarding wireless encryption in certain ADT security systems. Jurisdictionally, three of the five cases are in Federal Court (in districts within Illinois, Arizona, and California), and both of the remaining two cases are in Florida State Court (both in Palm Beach County Circuit Court). Each of the five plaintiffs brought a claim under the respective state’s consumer fraud statute alleging that The ADT Corporation and each of its consolidated subsidiaries prior to the consummation of the ADT Acquisition made misrepresentations and material omissions in its advertising regarding the unencrypted wireless signal pathways in certain security systems monitored by The ADT Corporation. The complaints in all five cases further allege that certain security systems monitored by The ADT Corporation are not secure because the wireless signal pathways are unencrypted and can be easily hacked. On January 10, 2017, the parties agreed to settle all five class action lawsuits. On October 16, 2017, the U.S. District Court for the Northern District of California entered an order granting preliminary approval of the settlement. Notice to class members was issued November 16, 2017, and the settlement is currently in the administration process. A fairness hearing regarding the settlement was conducted on February 1, 2018. The Court took the matter under advisement and subsequently stayed the settlement proceedings pending an appellate ruling on a related legal issue. The deadline for filing claims expired on February 26, 2018. The settlement administrator will not pay any claims until the Court enters an order granting final approval of the settlement.

TCPA Class Action relating to 2G-3G Radio Conversion Project

In August 2016, the Company was served with a class action complaint pending in the United States District Court for the Northern District of Georgia filed by a customer alleging that The ADT Corporation violated the Telephone Consumer Protection Act of 1991 (“TCPA”) by calling his cell phone, which was the only telephone number he provided to The ADT Corporation for his customer account, as part of The ADT Corporation’s efforts to communicate with customers affected by the Federal Communications Commission order allowing wireless carriers to sunset 2G wireless networks. Plaintiff seeks to represent a nationwide class of all The ADT Corporation customers who received such calls to their cell phones from 2013 to present. The premise of the plaintiff’s claim is that The ADT Corporation’s calls were telemarketing calls, which require a higher level of consent, and not transactional/business relationship calls because The ADT Corporation used the 2G transactional calls in an attempt to sell additional products and services. Plaintiff filed a motion for class certification. The ADT Corporation filed its opposition to class certification and further filed a motion for summary judgment in September 2017. The case settled for a nominal value in May 2018 prior to the Court ruling on the motions.

Shareholder Litigation

Five substantially similar shareholder class action lawsuits related to the January 2018 IPO of ADT Inc. common stock were filed in the Circuit Court of the Fifteenth Judicial Circuit in and for Palm Beach County, Florida in March, April, and May 2018. The actions are entitled Goldstrand Investments Inc. v. ADT Inc., Krebsbach v. ADT Inc., Katz v. ADT Inc., Sweet v. ADT Inc., and Lowinger v. ADT Inc. These cases have been consolidated for discovery and trial and are now entitled In re ADT Inc. Shareholder Litigation. The Lead Plaintiffs seek to represent a class of similarly situated shareholders and assert claims for alleged violations of the Securities Act of 1933, as amended (“Securities Act”). Plaintiffs allege that the ADT Inc. defendants violated the Securities Act because the registration statement and prospectus used to effectuate the IPO were false and misleading in that they allegedly misled investors with respect to litigation involving ADT Inc., ADT Inc.’s efforts to protect its intellectual property, and the competitive pressures faced by ADT Inc. Defendants moved to dismiss the consolidated complaint on October 23, 2018.

Briefing on the motion is in progress. A similar shareholder class action lawsuit also related to the January 2018 IPO was filed in the United States District Court for the Southern District of Florida in May 2018. The action is entitled Perdomo v. ADT Inc. In September and October 2018, four substantially similar shareholder derivative complaints were also filed against various ADT Inc. officers, directors and controlling shareholders in the United States District Court for the Southern District of Florida. The actions are entitled, Velasco v. Whall; Myung v. Whall; Scheel v. Whall; and Bradel v. Whall. Plaintiffs allege breaches of fiduciary duties as directors, officers, and/or controlling shareholders of ADT Inc., unjust enrichment, and violations of the federal securities laws for alleged misrepresentations regarding competitive pressures in the marketplace, litigation involving ADT Inc. intellectual property, and certain financial and operational metrics. On November 1, 2018, the Velasco action was transferred to the judge presiding over the earlier filed Perdomo action.

California Independent Contractor Litigation

In August 2017, Jabra Shuheiber filed civil litigation in Marin County Superior Court on behalf of himself and two other individuals asserting wage and hour violations against the Company. The action is entitled Jabra Shuheiber v. ADT, LLC (Case Number CV 1702912, Superior Court, Marin County). Mr. Shuheiber was the owner/operator of a sub-contractor, Maximum Protection, Inc. (“MPI”), who employed the other two plaintiffs in the litigation. In August 2018, in response to the California Supreme Court’s decision in Dynamex Operations West, Inc. v. Superior Court of Los Angeles County, counsel for Mr. Shuheiber provided the Company with a proposed amended complaint that modified the wage and hour claims such that they were brought on a class basis. The proposed class is not clearly defined but appears to be two groups of individuals: 1) individual owners of sub-contractors who performed services for the sub-contractor; and 2) individuals with no ownership interest in a sub-contractor who were employed by the sub-contractor and provided services pursuant to a contract between the sub-contractor and the Company. The Company has not been served with the proposed amended complaint.

Income Tax Matters

On September 28, 2012, Johnson Controls International plc (as successor to Tyco International Ltd., “Tyco”) distributed to its public stockholders The ADT Corporation’s common stock (“Separation from Tyco”), and The ADT Corporation became an independent public company. In connection with the Separation from Tyco in September 2012, The ADT Corporation entered into the 2012 Tax Sharing Agreement that governs the rights and obligations of The ADT Corporation, Tyco, and Pentair Ltd. for certain pre-Separation from Tyco tax liabilities, including Tyco’s obligations under the 2007 Tax Sharing Agreement among Tyco, Covidien, now operating as a subsidiary of Medtronic, and TE Connectivity. The ADT Corporation is responsible for all of its own taxes that are not shared pursuant to the 2012 Tax Sharing Agreement’s sharing formulae. Tyco and Pentair Ltd. are likewise responsible for their tax liabilities that are not subject to the 2012 Tax Sharing Agreement’s sharing formulae. Tyco has the right to administer, control, and settle all U.S. income tax audits for the periods prior to and including the Separation from Tyco.

In accordance with the 2012 Tax Sharing Agreement, Tyco is responsible for the first $500 million of tax, interest, and penalties assessed against pre-2013 tax years including its 27% share of the tax, interest, and penalties assessed for periods prior to Tyco’s 2007 spin-off transaction. In addition to the Company’s share of cash taxes pursuant to the 2012 Tax Sharing Agreement, the Company’s net operating loss (“NOL”) and credit carryforwards may be significantly reduced or eliminated by audit adjustments to pre-2013 tax periods. NOL and credit carryforwards may be reduced prior to incurring any cash tax liability and will not be compensated for under the tax sharing agreement. The Company believes that its income tax reserves and the liabilities recorded for the 2012 Tax Sharing Agreement continue to be appropriate. The ultimate resolution of any matters challenged by the tax authorities is uncertain, and if the tax authorities were to prevail, it could have a material adverse impact on the Company’s financial position, results of operations, and cash flows, potentially including a significant reduction in or the elimination of the Company’s available NOL and credit carryforwards generated in pre-Separation from Tyco periods. Further, to the extent The ADT Corporation is responsible for any liability under the 2012 Tax Sharing Agreement, there could be a material impact on its financial position, results of operations, cash flows, or its effective tax rate in future reporting periods.

During the third quarter of 2017, the Company was notified by the IRS of its intent to disallow amortization deductions claimed on the Company’s $987 million trademark (value as of 2012) and the Notice of Proposed Adjustment was received from the IRS in April 2018. The Company strongly disagreed with the IRS’s position and maintained that the deductions claimed were appropriate.

During the third quarter of 2018, the Company successfully defended its originally filed tax return position, and the IRS notified the Company of its withdrawal of the proposed adjustments disallowing amortization deductions claimed on the Company’s trademark. The IRS also officially closed the fiscal year 2010-2012 audit cycle with no additional adjustments to The ADT Corporation. Accordingly, as of the third quarter of 2018, all tax years through 2012 have been audited and resolved with the IRS, with the only remaining item being the finalization of the Company’s carryforward attributes. The IRS and the Company are currently working to reconcile differences on the carry forward attributes.

Other liabilities in the Company’s Condensed Consolidated Balance Sheets related to The ADT Corporation’s obligations under certain tax related agreements entered into in conjunction with the Separation from Tyco were not material as of September 30, 2018 and December 31, 2017. The maximum amount of potential future payments is not determinable as such payments relate to unknown conditions and future events that cannot be predicted.

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Derivative Financial Instruments

9 Months Ended

Sep. 30, 2018

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

Derivative Financial Instruments

The Company holds interest rate swap contracts with the objective of managing exposure to variability in interest rates on the Company’s debt. As of September 30, 2018, the Company had interest rate swap contracts outstanding with an aggregate notional amount of $3.5 billion, which consist of notional amounts of $1.5 billion and $1.0 billion entered into in June 2018 and August 2018, respectively, both maturing in April 2022, that are designated as cash flow hedges (“2018 Derivatives”), and notional amounts of $1.0 billion entered into in April 2017 maturing in April 2020, that are not designated as hedging instruments (“2017 Derivatives”).

The 2018 Derivatives consist of a series of LIBOR-based interest rate swap contracts. Changes in fair value of the 2018 Derivatives are recorded in accumulated other comprehensive loss in the Condensed Consolidated Balance Sheets and are reclassified into interest expense in the same period in which the related interest on the debt obligations affects earnings. As of September 30, 2018, the 2018 Derivatives were highly effective.

The impact to the condensed consolidated financial statements as a result of the 2018 Derivatives was not material. Further, amounts expected to be reclassified from accumulated other comprehensive loss into interest expense during the next twelve months is not material.

Changes in fair value of the 2017 Derivatives are reflected in interest expense, net in the Condensed Consolidated Statements of Operations, and were not material for the quarters and nine months ended September 30, 2018 and 2017.

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Share-based Compensation

9 Months Ended

Sep. 30, 2018

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Share-based Compensation

Share-based Compensation

2016 Equity Incentive Plan Awards

In 2016, the Company approved the 2016 Equity Incentive Plan, which provides for the issuance of non-qualified stock options to various employees of the Company. The Company records share-based compensation expense on options subject to time-based vesting, and subsequent to the consummation of the IPO, on options subject to vesting based upon the achievement of certain investment return thresholds by Apollo. The Company does not expect to issue additional share-based compensation awards under the 2016 Equity Incentive Plan. For the quarters and nine months ended September 30, 2018 and 2017, share-based compensation expense for awards under the 2016 Equity Incentive Plan was not material.

Class B Unit Redemption

The Company records share-based compensation expense on certain Class B Unit awards granted to employees by Ultimate Parent (“Class B Units”). The Class B Units have two separate tranches, one of which is subject to time-based vesting over a five-year period (“Class B Unit Service Tranche”), and the other subject to vesting based upon the achievement of certain investment return thresholds by Apollo (“Class B Unit Performance Tranche”). Prior to the IPO, the Company recorded share-based compensation expense on the Class B Unit Service Tranche, whereas no share-based compensation expense was recorded on the Class B Unit Performance Tranche as the vesting of these awards was not deemed probable.

During the first quarter of 2018 and in connection with the IPO, each holder of Class B Units in Ultimate Parent had his or her entire Class B interest in Ultimate Parent redeemed for the number of shares of the Company’s common stock (“Distributed Shares”) that would have been distributed to such holder under the terms of Ultimate Parent’s operating agreement in a hypothetical liquidation on the date of the IPO at the initial public offering price (“Class B Unit Redemption”). All vesting conditions for the Distributed Shares remain the same as the vesting conditions that existed under the terms of the Class B Units. The Distributed Shares also have certain other restrictions pursuant to the terms and conditions of the Company’s Amended and Restated Management Investor Rights Agreement (“MIRA”). Furthermore, as part of the Class B Unit Redemption, each holder received both vested and unvested Distributed Shares in the same proportion as the holder’s vested and unvested Class B Units held immediately prior to the IPO. As a result of the Class B Unit Redemption, holders of Class B Units received a total of 20.6 million shares of the Company’s common stock (17.8 million of which were unvested at the time of redemption). Of the Distributed Shares issued upon the Class B Unit Redemption, 50% were subject to the vesting conditions that existed for the Class B Unit Service Tranche (“Distributed Shares Service Tranche”) and 50% were subject to the vesting conditions that existed for the Class B Unit Performance Tranche (“Distributed Shares Performance Tranche”). As discussed below, all remaining unvested shares in the Distributed Shares Service Tranche became fully vested in July 2018. As of September 30, 2018, there were 10.2 million unvested and outstanding shares in the Distributed Shares Performance Tranche.

The Class B Unit Redemption resulted in a modification of the Class B Units. In connection with the modification, the Company utilized a Monte Carlo simulation to estimate the fair value of the Distributed Shares, as well as the derived service period for the Distributed Shares Performance Tranche. Significant assumptions included in the simulation were the risk-free interest rate and the expected volatility of the Company’s stock price. The Company selected a risk-free interest rate of 2.43%, which was based on a five-year U.S. Treasury with a zero-coupon rate. The Company also selected a stock price volatility of 30%, which was implied based upon an average of historical volatilities of publicly traded companies in industries similar to the Company, as the Company did not have sufficient history to use as a basis for actual stock price volatility. Additionally, because holders of unvested Distributed Shares are entitled to receive previously declared accrued dividends once the shares vest, a dividend yield assumption was not included in the simulation.

The Class B Unit Redemption resulted in weighted-average fair values of $14.00 and $12.97 for the Distributed Shares Service Tranche and Performance Tranche, respectively. The fair values also incorporate the estimated impact of post-vesting selling restrictions pursuant to the MIRA. During the first quarter of 2018, the Company began recording share-based compensation expense on the Distributed Shares Performance Tranche on a straight-line basis over the derived service period of approximately three years from the IPO date, as the vesting conditions were deemed probable following the consummation of the IPO. For the Distributed Shares Service Tranche, incremental compensation expense recorded as a result of the modification was not material. Additionally, the IPO triggered an acceleration of vesting of the unvested shares in the Distributed Shares Service Tranche, causing such Distributed Shares to become fully vested six months from the date of the IPO, which occurred in July 2018.

Share-based compensation expense associated with the Distributed Shares Service Tranche was $2 million and $28 million for the quarter and nine months ended September 30, 2018, respectively. Share-based compensation expense associated with the Distributed Shares Performance Tranche was $6 million and $29 million for the quarter and nine months ended September 30, 2018, respectively.

Top-up Options

In January 2018, the Company approved its 2018 Omnibus Incentive Plan (“2018 Omnibus Incentive Plan”), which became effective upon consummation of the IPO. Under the 2018 Omnibus Incentive Plan, and in connection with the Class B Unit Redemption, the Company granted 12.7 million options to holders of Class B Units (“Top-up Options”). The Top-up Options have an exercise price equal to the initial public offering price per share of the Company’s common stock and a contractual term of ten years from the grant date. Similar to the vesting conditions outlined above for the Distributed Shares, the Top-up Options contain a tranche subject to time-based vesting (“Top-up Options Service Tranche”) and a tranche subject to vesting based upon the achievement of certain investment return thresholds by Apollo (“Top-up Options Performance Tranche”). Recipients of the Top-up Options received both vested and unvested Top-up Options in the same proportion as the vested and unvested Class B Units held immediately prior to the IPO and Class B Unit Redemption. These vesting conditions are the same vesting conditions as those attributable to the Distributed Shares, including the condition that accelerated vesting of the unvested options in the Top-up Options Service Tranche, causing such options to become fully vested six months from the date of the IPO, which occurred in July 2018. Any shares of the Company’s common stock acquired upon exercise of the Top-up Options will be subject to the terms of the MIRA.

The Company used a Monte Carlo simulation to estimate the fair value of the Top-up Options, as well as the derived service period for the Top-up Options Performance Tranche. Significant assumptions included in the simulation were the risk-free interest rate, the expected volatility, and the expected dividend yield. The Company selected a risk-free interest rate of 2.43%, which was based on a five-year U.S. Treasury with a zero-coupon rate. The Company selected a stock price volatility of 30%, which was implied based upon an average of historical volatilities of publicly traded companies in industries similar to the Company, as the Company did not have sufficient history to use as a basis for actual stock price volatility. The Company also assumed a 1% dividend yield. The expected average exercise term was derived based on an average of the outcomes of various scenarios performed under the Monte Carlo simulation.

For the nine months ended September 30, 2018, the weighted-average grant date fair values of the Top-up Options Service Tranche and Top-up Options Performance Tranche were $5.02 and $5.04, respectively. The fair values also incorporate the estimated impact of post-vesting selling restrictions pursuant to the MIRA. In July 2018, all remaining unvested options in the Top-up Options Service Tranche became fully vested. As of September 30, 2018, there were 6.3 million unvested and outstanding options in the Top-up Options Performance Tranche.

The Company recorded share-based compensation expense associated with the Top-up Options Service Tranche on a straight-line basis over the requisite service period of six months from the IPO date. Share-based compensation expense associated with the Top-up Options Service Tranche was $2 million and $32 million for the quarter and nine months ended September 30, 2018, respectively.

The Company records share-based compensation expense associated with the Top-up Options Performance Tranche on a straight-line basis over the derived service period of approximately three years from the IPO date. Share-based compensation expense associated with the Top-up Options Performance Tranche was $2 million and $7 million for the quarter and nine months ended September 30, 2018, respectively.

Other 2018 Share-Based Compensation Awards

During the first quarter of 2018, in connection with the IPO, the Company granted 4.0 million options (“2018 Options”) and 1.1 million restricted stock units (“RSUs”) (“2018 RSUs”) under the 2018 Omnibus Incentive Plan. The 2018 Options and 2018 RSUs will cliff vest over a three-year period. For the 2018 Options, the contractual term is ten years. Other options and RSUs granted during the quarter and nine months ended September 30, 2018 were not material.

The Company used a Black-Scholes pricing model to estimate the fair value of the 2018 Options granted in the first quarter of 2018. Significant assumptions included in the model were the risk-free interest rate, the expected volatility, the expected dividend yield, and the expected exercise term. The Company selected a risk-free interest rate of 2.52%, which was based on a six-year U.S. Treasury with a zero-coupon rate. The Company selected a stock price volatility of 30%, which was implied based upon an average of historical volatilities of publicly traded companies in industries similar to the Company, as the Company did not have sufficient history to use as a basis for actual stock price volatility. The Company also assumed a 1% dividend yield. The expected average exercise term of 6.5 years was calculated using the simplified method, as the Company did not have sufficient historical exercise data to provide a reasonable basis to estimate future exercise patterns.

The grant date fair values of the 2018 Options and 2018 RSUs granted in connection with the IPO were $4.35 and $14.00, respectively.

The Company records share-based compensation expense associated with the 2018 Options and 2018 RSUs on a straight-line basis over the requisite service period. For the quarter and nine months ended September 30, 2018, share-based compensation expense associated with the 2018 Options and 2018 RSUs was not material. As of September 30, 2018, the number of 2018 Options and 2018 RSUs granted in connection with the IPO that were unvested and outstanding were 3.8 million and 1.0 million, respectively.

For all share-based compensation awards, the Company recognizes forfeitures as they occur. Share-based compensation expense is included in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations. For the quarter and nine months ended September 30, 2018, share-based compensation expense on all awards was $18 million and $113 million, respectively. For the quarter and nine months ended September 30, 2017, share-based compensation expense on all awards was $4 million and $8 million, respectively.

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Equity

9 Months Ended

Sep. 30, 2018

Equity [Abstract]

Equity

Equity

Stock Split and Initial Public Offering

Refer to Note 1 “Basis of Presentation and Summary of Significant Accounting Policies” for a discussion regarding the Stock Split and the Company’s completion of an IPO in January 2018.

Common Stock Dividends

During the nine months ended September 30, 2018, the Company’s board of directors declared the following cash dividends on common stock:

Declared Date	Dividend per Share	Record Date	Payment Date
March 15, 2018	$0.035	March 26, 2018	April 5, 2018
May 9, 2018	$0.035	June 25, 2018	July 10, 2018
August 8, 2018	$0.035	September 18, 2018	October 2, 2018

During the nine months ended September 30, 2017, the Company paid dividends in an aggregate amount of $750 million in February and April 2017 to the Company’s equity holders and Ultimate Parent, which primarily included distributions to the Company’s Sponsor (“Special Dividend”).

Accumulated Other Comprehensive Loss

During the quarters and nine months ended September 30, 2018 and 2017, the Company did not record any material reclassifications out of accumulated other comprehensive loss.

Other

As discussed in Note 1 “Basis of Presentation and Summary of Significant Accounting Policies,” the opening balance of stockholders’ equity for the nine months ended September 30, 2018 includes $34 million, net of tax, attributable to the cumulative effect of the adoption of the new revenue recognition standard.

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Net Loss per Share

9 Months Ended

Sep. 30, 2018

Earnings Per Share [Abstract]

Net Loss per Share

Net Loss per Share

Basic net loss per share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted net loss per share is calculated by dividing net loss available to common stockholders by the diluted weighted average number of common shares outstanding for the period. Diluted net loss per share would reflect the potential dilutive effect of common stock equivalents outstanding for the period determined using the treasury-stock method. For purposes of the diluted net loss per share calculation, all awards that potentially could be dilutive were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive, therefore, basic net loss per share is equal to diluted net loss per share for each period presented.

The following table includes the computations of basic and diluted net loss per share for the periods presented.

	For the Quarters Ended						For the Nine Months Ended
(in thousands, except per share amounts)	September 30, 2018			September 30, 2017			September 30, 2018			September 30, 2017
Numerator:
Net loss	$	(235,544	)	$	(62,030	)	$	(459,686	)	$	(295,561	)
Denominator:
Weighted-average number of shares outstanding, basic and diluted	755,277			641,088			744,720			641,061
Net loss per share:
Basic and diluted	$	(0.31	)	$	(0.10	)	$	(0.62	)	$	(0.46	)

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Related Party Transactions

9 Months Ended

Sep. 30, 2018

Related Party Transactions [Abstract]

Related Party Transactions

Related Party Transactions

Management Consulting Agreement

In May 2016, in connection with the acquisition of The ADT Corporation, Apollo Management Holdings, L.P., an affiliate of the Company’s Sponsor (“Management Service Provider”) entered into a management consulting agreement with the Company (“Management Consulting Agreement”) relating to the provision of certain management consulting and advisory services to the Company following this acquisition. The Management Consulting Agreement terminated in accordance with its terms in January 2018 upon consummation of the IPO.

Prior to the termination of the Management Consulting Agreement, the Company paid approximately $1 million to the Management Service Provider during the nine months ended September 30, 2018. During the quarter and nine months ended September 30, 2017, fees under the Management Consulting Agreement were $5 million and $15 million, respectively. These fees are included in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations.

Koch Preferred Securities

The Company identified the Koch Investor as a related party. Refer to Note 6 “Mandatorily Redeemable Preferred Securities” for further discussion of transactions related to the Koch Preferred Securities.

Apollo Global Securities, LLC

An affiliate of Apollo, Apollo Global Securities, LLC (“AGS”), served as an underwriter in the Company’s IPO. As part of the IPO, AGS agreed to purchase, and the Company agreed to sell, 4,200,000 shares of common stock. The Company paid $2 million in commissions to AGS in connection with its role as an underwriter in the IPO. The net amount of this transaction is

included in common stock issued for initial public offering proceeds in the Condensed Consolidated Statement of Stockholders’ Equity for the nine months ended September 30, 2018.

During the nine months ended September 30, 2017, the Company paid approximately $1 million to AGS related to amendments and restatements to the Company’s first lien credit facilities. These expenses are included in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations.

Other Transactions

During the nine months ended September 30, 2017, the Company paid $750 million of the Special Dividend to the Company’s equity holders and Ultimate Parent, which primarily included distributions to its Sponsor. In connection with the Special Dividend, the Company also paid $45 million of structuring fees to the Koch Investor, which is included in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations for the nine months ended September 30, 2017.

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Subsequent Events

9 Months Ended

Sep. 30, 2018

Subsequent Events [Abstract]

Subsequent Events

Subsequent Events

Common Stock Dividend

On November 7, 2018, the Company’s board of directors declared a cash dividend of $0.035 per share to common stockholders of record as of December 14, 2018. This dividend will be paid on January 4, 2019.

Acquisition of Red Hawk Fire & Security

On October 24, 2018, the Company entered into a Purchase Agreement and Plan of Merger (“Merger Agreement”) to acquire Red Hawk Fire & Security (“Red Hawk”), a nationwide leader in commercial fire, life safety, and security services, for total consideration of approximately $317.5 million in cash. Under the terms of the Merger Agreement, Red Hawk will become a wholly-owned indirect subsidiary of the Company (“Merger”). The consummation of the Merger is subject to customary closing conditions and is expected to occur in the fourth quarter of 2018. The Company will account for this transaction as a business combination using the acquisition method of accounting.

In connection with the Merger, the Company has obtained debt financing commitments for up to an additional $317.5 million under the First Lien Credit Agreement.

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Basis of Presentation and Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2018

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation

Basis of Presentation—The condensed consolidated financial statements include the accounts of ADT Inc. and its wholly owned subsidiaries and have been prepared in U.S. dollars in accordance with generally accepted accounting principles in the United States of America (“GAAP”). The condensed consolidated financial statements included herein are unaudited, but in the opinion of management, such financial statements include all adjustments, consisting of normal recurring adjustments, necessary to summarize fairly the Company’s financial position, results of operations, and cash flows for the interim periods presented. The interim results reported in these condensed consolidated financial statements should not be taken as indicative of results that may be expected for future interim periods or the full year. For a more comprehensive understanding of the Company and its interim results, these condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2017, which was filed with the U.S. Securities and Exchange Commission (“SEC”) on March 15, 2018.

The Condensed Consolidated Balance Sheet as of December 31, 2017 included herein was derived from the audited consolidated financial statements as of that date but does not include all the footnote disclosures from the annual financial statements.

The Company conducts business through its operating entities and reports financial and operating information in one segment. All intercompany transactions have been eliminated. The results of companies acquired are included in the condensed consolidated financial statements from the effective dates of the acquisitions.

Reclassifications

Reclassifications—Certain prior period amounts have been reclassified to conform with the current period presentation.

Use of Estimates

Use of Estimates—The preparation of financial statements in accordance with GAAP requires management to make estimates and judgments that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities, and reported amounts of revenue and expenses. Significant estimates and judgments inherent in the preparation of the condensed consolidated financial statements include, but are not limited to, estimates of future cash flows and valuation-related assumptions associated with asset impairment testing and the valuation of certain intangible and tangible assets and liabilities in connection with the acquisition of businesses, useful lives and methods for depreciation and amortization, loss contingencies, and income taxes and tax valuation allowances. Actual results could differ materially from these estimates.

Merger, Restructuring, Integration, and Other

Merger, Restructuring, Integration, and Other—Included in merger, restructuring, integration, and other in the Condensed Consolidated Statements of Operations are certain direct and incremental costs resulting from acquisitions made by the Company, certain related integration efforts as a result of those acquisitions, costs related to the Company’s restructuring efforts, as well as fair value remeasurements and impairment charges on certain of the Company’s strategic investments.

Subscriber System Assets, Net

Subscriber System Assets, Net—Capitalized equipment and installation costs incurred in connection with transactions in which the Company retains ownership of the security systems are included in subscriber system assets, net in the Condensed Consolidated Balance Sheets. Depreciation expense relating to subscriber system assets is included in depreciation and intangible asset amortization in the Condensed Consolidated Statements of Operations.

Financial Instruments

Financial Instruments—The Company’s financial instruments primarily consist of cash and cash equivalents, restricted cash and cash equivalents, accounts receivable, accounts payable, debt, preferred securities, and derivative financial instruments.

Cash and Cash Equivalents, Restricted Cash and Cash Equivalents

Cash Equivalents—Included in cash and cash equivalents are investments in money market mutual funds, which totaled $136 million and $51 million as of September 30, 2018 and December 31, 2017, respectively. These investments are classified as Level 1 for purposes of fair value measurement.Restricted Cash and Cash Equivalents—Restricted cash and cash equivalents are restricted for a specific purpose and cannot be included in the general cash account. Restricted cash and cash equivalents are included in prepaid expenses and other current assets in the Condensed Consolidated Balance Sheets and were not material as of September 30, 2018 and December 31, 2017.

Long-Term Debt Instruments and Preferred Securities

Long-Term Debt Instruments—The fair values of the Company’s long-term debt instruments are determined using broker-quoted market prices, which are considered Level 2 inputs. The carrying amount of debt outstanding, if any, under the Company’s revolving credit facilities approximates fair value as interest rates on these borrowings approximate current market rates and are considered Level 2 inputs.

The carrying value and fair value of the Company’s long-term debt instruments that are subject to fair value disclosures as of September 30, 2018 and December 31, 2017 are as follows:

	September 30, 2018				December 31, 2017
(in thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Debt instruments, excluding capital lease obligations	$	9,532,794	$	9,840,892	$	10,128,020	$	10,868,626

Koch Preferred Securities—As stated above, the Company redeemed the Koch Preferred Securities in full on July 2, 2018.

As of December 31, 2017, the Koch Preferred Securities had a carrying value and fair value of $682 million and $925 million, respectively. The fair value was estimated using a discounted cash-flow approach in conjunction with a binomial lattice interest rate model to incorporate the contractual dividends and the Company’s ability to redeem the Koch Preferred Securities. Key input assumptions to the valuation analysis included the credit spread, yield volatility, and expected time to redemption, which are considered Level 3 inputs. The credit spread was estimated using the credit spread at issuance of the Koch Preferred Securities and adjusted for the change in observed publicly traded debt of the Company between the issuance date and the measurement date. The yield volatility estimate was based on the historical yield volatility observed from comparable public high yield debt. The expected time to redemption was based on the Company’s expectations.

Derivative Financial Instruments

Derivative Financial Instruments—Derivative financial instruments are reported at fair value as either assets or liabilities in the Condensed Consolidated Balance Sheets. For derivative instruments that qualify for hedge accounting, changes in fair values are recognized in accumulated other comprehensive loss in the Condensed Consolidated Balance Sheets. For derivative instruments for which the Company does not apply hedge accounting, changes in fair values are recognized in the Condensed Consolidated Statements of Operations according to the nature of the hedged items.

Guarantees

Guarantees—In the normal course of business, the Company is liable for contract completion and product performance. The Company does not believe such obligations will significantly affect its financial position, results of operations, or cash flows.

Recently Adopted Accounting Pronouncements

Recently Adopted Accounting Pronouncements—In May 2014, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance that sets forth a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The Company adopted this new standard and its related amendments effective on January 1, 2018 using the modified retrospective transition method, whereby the cumulative effect of initially applying the new standard is recognized as an adjustment to the opening balance of stockholders’ equity. Results for reporting periods beginning on or after January 1, 2018 are presented under this new standard, while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for the prior period.

The largest impact from the new standard relates to the timing of recognition of certain incremental selling costs associated with acquiring new customers. Under the new standard, certain costs previously amortized over the initial contract term will now be amortized in pools based on the expected life of a customer relationship using an accelerated method over 15 years. To a lesser extent, the adoption of the new standard impacted the identification of performance obligations and the allocation of transaction price to those performance obligations for certain sales of security systems sold outright to customers.

As of January 1, 2018, due to the cumulative impact of adopting this new standard, the Company recorded a net increase to the opening balance of stockholders’ equity of $34 million, which is net of tax of $12 million. The impact to the line items in the Condensed Consolidated Balance Sheet was as follows:

	Balance at December 31, 2017			Revenue Standard Adoption Adjustment		Balance at January 1, 2018
(in thousands)
Assets
Prepaid expenses and other current assets	$	77,241		$	6,615	$	83,856
Deferred subscriber acquisition costs, net	282,478			33,380		315,858
Other assets	123,967			6,321		130,288
Liabilities
Deferred tax liabilities	1,376,708			11,886		1,388,594
Stockholders' equity
Accumulated deficit	(998,212		)	34,430		(963,782		)

Refer to Note 2 “Revenue” for further discussion related to the impact of adopting this standard.

In January 2016, the FASB issued authoritative guidance related to the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. Under the new guidance, equity investments with readily determinable fair values, except those accounted for under the equity method, will be measured at fair value with changes in fair value recognized in earnings. Equity investments that do not have readily determinable fair values may be measured at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. In addition, this update clarifies the guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from the unrealized losses on certain debt securities. The Company adopted this guidance effective on January 1, 2018. Fair value remeasurements on strategic investments and other equity investments are reflected in operating expenses and other income/expense, respectively, in the Condensed Consolidated Statements of Operations. The adoption of this guidance did not have a material impact to the condensed consolidated financial statements.

In November 2016, the FASB issued authoritative guidance amending the presentation of restricted cash within the statement of cash flows. The new guidance requires amounts generally described as restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The Company adopted this guidance effective on January 1, 2018 using the retrospective transition method for all periods presented in the Condensed Consolidated Statements of Cash Flows. The following table provides

a reconciliation of the amount of cash and cash equivalents and restricted cash and cash equivalents reported within the Condensed Consolidated Balance Sheets to the total of the same such amounts shown in the Condensed Consolidated Statements of Cash Flows:

(in thousands)	September 30, 2018		December 31, 2017
Cash and cash equivalents	$	256,917	$	122,899
Restricted cash and cash equivalents in prepaid expenses and other current assets	3,885		3,883
Cash and cash equivalents and restricted cash and cash equivalents at end of period	$	260,802	$	126,782

In May 2017, the FASB issued authoritative guidance that addresses changes to the terms or conditions of a share-based payment award, specifically regarding which changes to the terms or conditions of a share-based payment award would require modification accounting. This guidance does not change the accounting for modifications but clarifies that an entity should apply modification accounting except when the fair value, vesting conditions, and classification of the modified award are the same as the original award immediately before the modification. The Company adopted this guidance effective on January 1, 2018 and applied the guidance prospectively to share-based payment award modifications subsequent to the date of adoption. The adoption of this guidance did not have a material impact to the condensed consolidated financial statements. Refer to Note 10 “Share-based Compensation” for further discussion.

In August 2017, the FASB issued authoritative guidance which simplifies the application of hedge accounting standards to better portray the economic results of risk management activities in the financial statements. The guidance aligns the recognition and presentation of the effects of hedging instruments with the hedged items in the financial statements and includes certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness at inception and on an ongoing basis. The guidance also eliminates the requirement to measure and disclose the ineffective portion of the change in fair value of cash flow hedges. The Company elected to early adopt this guidance in the second quarter of 2018, and applied the guidance to qualified hedging instruments entered into subsequent to the date of adoption. The Company did not have any derivative instruments classified as hedging instruments prior to the date of adoption. The adoption of this guidance did not have a material impact to the condensed consolidated financial statements. Refer to Note 9 “Derivative Financial Instruments” for further discussion.

In June 2018, the FASB issued authoritative guidance related to the accounting for non-employee share-based compensation transactions, which aligns the guidance for share-based payment transactions for acquiring goods and services from non-employees, with certain exceptions, with the guidance for share-based compensation for employees. The Company elected to early adopt this guidance in the third quarter of 2018. The adoption of this guidance did not have a material impact to the condensed consolidated financial statements.

Recently Issued Accounting Pronouncements—In February 2016, the FASB issued authoritative guidance on accounting for leases. This new guidance, and related amendments, requires lessees to recognize a right-to-use asset and a lease liability for substantially all leases, and to disclose key information about leasing arrangements. The recognition, measurement, and presentation of expenses and cash flows for lessees will remain significantly unchanged from current guidance. This guidance is effective for all public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and will be effective for the Company in the first quarter of 2019. Early adoption is permitted. The guidance requires that a company adopt the standard using a modified retrospective approach, however, recent amendments allow for an alternative transition method whereby a company can apply this new guidance at the adoption date and recognize the cumulative effect of adoption as an adjustment to the opening balance of stockholders’ equity. The Company is currently evaluating the transition method, use of practical expedients, and impact of this guidance.

In January 2017, the FASB issued authoritative guidance to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. This guidance will be effective for the Company for annual or any interim goodwill impairment tests beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests.

In August 2018, the FASB issued authoritative guidance to align the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is classified as a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and will be effective for the Company in the first quarter of 2020. Early adoption is permitted. Companies may apply this guidance either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is currently evaluating the impact of this guidance.

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Basis of Presentation and Summary of Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2018

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Schedule of Components of System Assets

The following tables set forth the gross carrying amounts, accumulated depreciation, and depreciation expense relating to subscriber system assets for the periods presented.

(in thousands)	September 30, 2018			December 31, 2017
Gross carrying amount	$	4,170,741		$	3,762,905
Accumulated depreciation	(1,264,182		)	(870,222		)
Subscriber system assets, net	$	2,906,559		$	2,892,683

	For the Quarters Ended				For the Nine Months Ended
(in thousands)	September 30, 2018		September 30, 2017		September 30, 2018		September 30, 2017
Subscriber system assets depreciation expense	$	137,488	$	135,055	$	410,236	$	401,275

Schedule of Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities as of September 30, 2018 and December 31, 2017 consist of the following:

(in thousands)	September 30, 2018		December 31, 2017
Accrued interest	$	144,886	$	91,592
Payroll-related accruals	77,944		94,501
Other accrued liabilities	221,742		165,247
Accrued expenses and other current liabilities	$	444,572	$	351,340

Schedule of Carrying Values and Estimated Fair Values of Debt Instruments and Securities

The carrying value and fair value of the Company’s long-term debt instruments that are subject to fair value disclosures as of September 30, 2018 and December 31, 2017 are as follows:

	September 30, 2018				December 31, 2017
(in thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Debt instruments, excluding capital lease obligations	$	9,532,794	$	9,840,892	$	10,128,020	$	10,868,626

Impact of New Accounting Pronouncements on Financial Statements

The impact to the line items in the Condensed Consolidated Balance Sheet was as follows:

	Balance at December 31, 2017			Revenue Standard Adoption Adjustment		Balance at January 1, 2018
(in thousands)
Assets
Prepaid expenses and other current assets	$	77,241		$	6,615	$	83,856
Deferred subscriber acquisition costs, net	282,478			33,380		315,858
Other assets	123,967			6,321		130,288
Liabilities
Deferred tax liabilities	1,376,708			11,886		1,388,594
Stockholders' equity
Accumulated deficit	(998,212		)	34,430		(963,782		)

The impact from the adoption of the new revenue standard on the Company’s condensed consolidated financial statements as of and for the quarter and nine months ended September 30, 2018 was as follows:

	For the Quarter Ended September 30, 2018									For the Nine Months Ended September 30, 2018
	As Reported			Balances without Adoption of Standard			Effect of Adoption Increase / (Decrease)			As Reported			Balances without Adoption of Standard			Effect of Adoption Increase / (Decrease)
Statements of Operations (in thousands)
Monitoring and related services	$	1,029,399		$	1,031,006		$	(1,607	)	$	3,069,817		$	3,074,260		$	(4,443	)
Installation and other	118,917			117,288			1,629			326,406			320,635			5,771
Total revenue	1,148,316			1,148,294			22			3,396,223			3,394,895			1,328
Cost of revenue (exclusive of depreciation and amortization shown separately below)	263,286			263,286			—			757,905			757,905			—
Selling, general and administrative expenses(1)	295,119			302,039			(6,920		)	922,627			943,010			(20,383		)
Depreciation and intangible asset amortization	474,772			474,772			—			1,446,768			1,446,768			—
Merger, restructuring, integration, and other	(6,708		)	(6,708		)	—			1,770			1,770			—
Operating income	121,847			114,905			6,942			267,153			245,442			21,711
Interest expense, net	(152,405		)	(152,405		)	—			(501,217		)	(501,217		)	—
Loss on extinguishment of debt	(213,239		)	(213,239		)	—			(274,836		)	(274,836		)	—
Other income	552			552			—			29,374			29,374			—
Loss before income taxes	(243,245		)	(250,187		)	6,942			(479,526		)	(501,237		)	21,711
Income tax benefit	7,701			9,123			(1,422		)	19,840			24,703			(4,863		)
Net loss	$	(235,544	)	$	(241,064	)	$	5,520		$	(459,686	)	$	(476,534	)	$	16,848

_________________

(1) For the quarter and nine months ended September 30, 2018, the effect of adoption includes approximately $5 million and $14 million, respectively, associated with non-cash amortization expense of deferred subscriber acquisition costs.

	As Reported			Balances without Adoption of Standard			Effect of Adoption Increase / (Decrease)
Balance Sheet (in thousands)
Assets
Prepaid expenses and other current assets	$	107,364		$	98,851		$	8,513
Deferred subscriber acquisition costs, net	400,946			346,067			54,879
Other assets	148,242			143,607			4,635
Liabilities
Deferred tax liabilities	1,370,142			1,353,393			16,749
Stockholders' equity
Accumulated deficit	(1,504,054		)	(1,555,332		)	51,278

Schedule of Restrictions on Cash and Cash Equivalents

The following table provides

a reconciliation of the amount of cash and cash equivalents and restricted cash and cash equivalents reported within the Condensed Consolidated Balance Sheets to the total of the same such amounts shown in the Condensed Consolidated Statements of Cash Flows:

(in thousands)	September 30, 2018		December 31, 2017
Cash and cash equivalents	$	256,917	$	122,899
Restricted cash and cash equivalents in prepaid expenses and other current assets	3,885		3,883
Cash and cash equivalents and restricted cash and cash equivalents at end of period	$	260,802	$	126,782

Schedule of Cash and Cash Equivalents

The following table provides

a reconciliation of the amount of cash and cash equivalents and restricted cash and cash equivalents reported within the Condensed Consolidated Balance Sheets to the total of the same such amounts shown in the Condensed Consolidated Statements of Cash Flows:

(in thousands)	September 30, 2018		December 31, 2017
Cash and cash equivalents	$	256,917	$	122,899
Restricted cash and cash equivalents in prepaid expenses and other current assets	3,885		3,883
Cash and cash equivalents and restricted cash and cash equivalents at end of period	$	260,802	$	126,782

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Revenues (Tables)

9 Months Ended

Sep. 30, 2018

Revenue from Contract with Customer [Abstract]

Impact of New Accounting Pronouncements on Financial Statements

The impact to the line items in the Condensed Consolidated Balance Sheet was as follows:

	Balance at December 31, 2017			Revenue Standard Adoption Adjustment		Balance at January 1, 2018
(in thousands)
Assets
Prepaid expenses and other current assets	$	77,241		$	6,615	$	83,856
Deferred subscriber acquisition costs, net	282,478			33,380		315,858
Other assets	123,967			6,321		130,288
Liabilities
Deferred tax liabilities	1,376,708			11,886		1,388,594
Stockholders' equity
Accumulated deficit	(998,212		)	34,430		(963,782		)

The impact from the adoption of the new revenue standard on the Company’s condensed consolidated financial statements as of and for the quarter and nine months ended September 30, 2018 was as follows:

	For the Quarter Ended September 30, 2018									For the Nine Months Ended September 30, 2018
	As Reported			Balances without Adoption of Standard			Effect of Adoption Increase / (Decrease)			As Reported			Balances without Adoption of Standard			Effect of Adoption Increase / (Decrease)
Statements of Operations (in thousands)
Monitoring and related services	$	1,029,399		$	1,031,006		$	(1,607	)	$	3,069,817		$	3,074,260		$	(4,443	)
Installation and other	118,917			117,288			1,629			326,406			320,635			5,771
Total revenue	1,148,316			1,148,294			22			3,396,223			3,394,895			1,328
Cost of revenue (exclusive of depreciation and amortization shown separately below)	263,286			263,286			—			757,905			757,905			—
Selling, general and administrative expenses(1)	295,119			302,039			(6,920		)	922,627			943,010			(20,383		)
Depreciation and intangible asset amortization	474,772			474,772			—			1,446,768			1,446,768			—
Merger, restructuring, integration, and other	(6,708		)	(6,708		)	—			1,770			1,770			—
Operating income	121,847			114,905			6,942			267,153			245,442			21,711
Interest expense, net	(152,405		)	(152,405		)	—			(501,217		)	(501,217		)	—
Loss on extinguishment of debt	(213,239		)	(213,239		)	—			(274,836		)	(274,836		)	—
Other income	552			552			—			29,374			29,374			—
Loss before income taxes	(243,245		)	(250,187		)	6,942			(479,526		)	(501,237		)	21,711
Income tax benefit	7,701			9,123			(1,422		)	19,840			24,703			(4,863		)
Net loss	$	(235,544	)	$	(241,064	)	$	5,520		$	(459,686	)	$	(476,534	)	$	16,848

_________________

(1) For the quarter and nine months ended September 30, 2018, the effect of adoption includes approximately $5 million and $14 million, respectively, associated with non-cash amortization expense of deferred subscriber acquisition costs.

	As Reported			Balances without Adoption of Standard			Effect of Adoption Increase / (Decrease)
Balance Sheet (in thousands)
Assets
Prepaid expenses and other current assets	$	107,364		$	98,851		$	8,513
Deferred subscriber acquisition costs, net	400,946			346,067			54,879
Other assets	148,242			143,607			4,635
Liabilities
Deferred tax liabilities	1,370,142			1,353,393			16,749
Stockholders' equity
Accumulated deficit	(1,504,054		)	(1,555,332		)	51,278

Disaggregation of Revenue

The following table sets forth the Company’s revenues disaggregated by source:

(in thousands)	For the Quarter Ended September 30, 2018		For the Nine Months Ended September 30, 2018
Monitoring and related services	$	1,029,399	$	3,069,817
Installation and other	118,917		326,406
Total revenue	$	1,148,316	$	3,396,223

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Goodwill and Other Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2018

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Indefinite-Lived Intangible Assets

The following table sets forth the gross carrying amounts, accumulated amortization, and net carrying amounts of the Company’s other intangible assets as of September 30, 2018 and December 31, 2017:

	September 30, 2018							December 31, 2017
(in thousands)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Definite-lived intangible assets:
Contracts and related customer relationships	$	7,284,196	$	(2,545,113	)	$	4,739,083	$	6,748,355	$	(1,749,327	)	$	4,999,028
Dealer relationships	1,603,490		(209,915		)	1,393,575		1,605,910		(146,299		)	1,459,611
Other	196,898		(174,438		)	22,460		195,363		(130,227		)	65,136
Total definite-lived intangible assets	9,084,584		(2,929,466		)	6,155,118		8,549,628		(2,025,853		)	6,523,775
Indefinite-lived intangible assets:
Trade name	1,333,000		—			1,333,000		1,333,000		—			1,333,000
Intangible assets	$	10,417,584	$	(2,929,466	)	$	7,488,118	$	9,882,628	$	(2,025,853	)	$	7,856,775

Schedule of Finite-Lived Intangible Assets

The following table sets forth the gross carrying amounts, accumulated amortization, and net carrying amounts of the Company’s other intangible assets as of September 30, 2018 and December 31, 2017:

	September 30, 2018							December 31, 2017
(in thousands)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Definite-lived intangible assets:
Contracts and related customer relationships	$	7,284,196	$	(2,545,113	)	$	4,739,083	$	6,748,355	$	(1,749,327	)	$	4,999,028
Dealer relationships	1,603,490		(209,915		)	1,393,575		1,605,910		(146,299		)	1,459,611
Other	196,898		(174,438		)	22,460		195,363		(130,227		)	65,136
Total definite-lived intangible assets	9,084,584		(2,929,466		)	6,155,118		8,549,628		(2,025,853		)	6,523,775
Indefinite-lived intangible assets:
Trade name	1,333,000		—			1,333,000		1,333,000		—			1,333,000
Intangible assets	$	10,417,584	$	(2,929,466	)	$	7,488,118	$	9,882,628	$	(2,025,853	)	$	7,856,775

For the nine months ended September 30, 2018, the changes in the net carrying amount of contracts and related customer relationships were as follows:

(in thousands)
Balance as of December 31, 2017	$	4,999,028
Acquisition of customer relationships	20,246
Customer contract additions, net of dealer charge-backs	525,729
Amortization	(798,267		)
Currency translation and other	(7,653		)
Balance as of September 30, 2018	$	4,739,083

Finite-lived Intangible Assets Amortization Expense

Amortization expense for definite-lived intangible assets for the periods presented was as follows:

	For the Quarters Ended				For the Nine Months Ended
(in thousands)	September 30, 2018		September 30, 2017		September 30, 2018		September 30, 2017
Definite-lived intangible asset amortization expense	$	293,535	$	292,023	$	906,233	$	864,918

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense

The estimated aggregate amortization expense for definite-lived intangible assets is expected to be as follows:

(in thousands)
Remainder of 2018	$	295,632
2019	1,143,309
2020	1,089,492
2021	987,260
2022	640,412
2023	284,929

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Equity (Tables)

9 Months Ended

Sep. 30, 2018

Equity [Abstract]

Schedule of Dividends Declared

During the nine months ended September 30, 2018, the Company’s board of directors declared the following cash dividends on common stock:

Declared Date	Dividend per Share	Record Date	Payment Date
March 15, 2018	$0.035	March 26, 2018	April 5, 2018
May 9, 2018	$0.035	June 25, 2018	July 10, 2018
August 8, 2018	$0.035	September 18, 2018	October 2, 2018

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Net Loss per Share (Tables)

9 Months Ended

Sep. 30, 2018

Earnings Per Share [Abstract]

Computation of Basic and Diluted Earnings Per Share

The following table includes the computations of basic and diluted net loss per share for the periods presented.

	For the Quarters Ended						For the Nine Months Ended
(in thousands, except per share amounts)	September 30, 2018			September 30, 2017			September 30, 2018			September 30, 2017
Numerator:
Net loss	$	(235,544	)	$	(62,030	)	$	(459,686	)	$	(295,561	)
Denominator:
Weighted-average number of shares outstanding, basic and diluted	755,277			641,088			744,720			641,061
Net loss per share:
Basic and diluted	$	(0.31	)	$	(0.10	)	$	(0.62	)	$	(0.46	)

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Basis of Presentation and Summary of Significant Accounting Policies - Additional Information (Details) $ / shares in Units, $ in Thousands				1 Months Ended		3 Months Ended			9 Months Ended
	Jul. 02, 2018 USD ($)	Feb. 21, 2018 USD ($)	Jan. 04, 2018	Feb. 28, 2018 USD ($)	Jan. 31, 2018 USD ($) $ / shares shares	Sep. 30, 2018 USD ($)	Jun. 30, 2018 USD ($)	Sep. 30, 2017 USD ($)	Sep. 30, 2018 USD ($) segment	Sep. 30, 2017 USD ($)	Feb. 22, 2018 USD ($)	Jan. 01, 2018 USD ($)	Dec. 31, 2017 USD ($) $ / shares shares
Debt Instrument [Line Items]
Number of operating segments | segment									1
Stock split, conversion ratio			1.681
Noncurrent restricted cash and cash equivalents					$ 750,000
Mandatorily redeemable preferred securities par value (in dollars per share) | $ / shares					$ 0.01
Loss on extinguishment of debt						$ 213,239		$ 0	$ 274,836	$ 4,331
Revenue							$ 22,000		22,000
Gain (loss) related to litigation settlement							7,500
Money market funds						136,000			136,000				$ 51,000
Guarantor obligations, current carrying value						55,000			$ 55,000				54,000
Amount awarded from other party				$ 7,500	$ 10,000
Settlement cash amount				$ 24,000
Payment term				48 months
Amount expected from sale							15,000
Proceeds from sale of equity method investments							$ 12,000
Term of customer relationship									15 years
Retained earnings (accumulated deficit)						(1,504,054)			$ (1,504,054)			$ (963,782)	(998,212)
Deferred tax liabilities						1,370,142			1,370,142			1,388,594	1,376,708
Reported Value Measurement
Debt Instrument [Line Items]
Koch Preferred Securities													682,000
Estimate of Fair Value Measurement
Debt Instrument [Line Items]
Koch Preferred Securities													$ 925,000
Difference between Revenue Guidance in Effect before and after Topic 606 | Accounting Standards Update 2014-09
Debt Instrument [Line Items]
Loss on extinguishment of debt						0			0
Retained earnings (accumulated deficit)						51,278			51,278			34,430
Deferred tax liabilities						16,749			16,749			$ 11,886
Mandatorily Redeemable Preferred Stock
Debt Instrument [Line Items]
Mandatorily redeemable preferred securities outstanding (in shares) | shares					750,000								750,000
Mandatorily redeemable preferred securities par value (in dollars per share) | $ / shares													$ 0.01
Mandatorily Redeemable Preferred Stock | Koch
Debt Instrument [Line Items]
Payments for repurchase of trust preferred securities	$ 949,000
Payment for repurchase of trust preferred securities, premiums	103,000
Loss on extinguishment of debt						$ 213,000			213,000
Prime Notes | Senior Notes
Debt Instrument [Line Items]
Repayments of senior debt		$ 649,000
Repurchased face amount		$ 594,000
Interest rate		9.25%
Long-term debt, gross											$ 2,546,000
Loss on extinguishment of debt		$ 62,000
Affiliated Entity | Mandatorily Redeemable Preferred Stock | Koch
Debt Instrument [Line Items]
Payments of dividends	$ 96,000							$ 22,000	$ 51,000	$ 63,000
IPO
Debt Instrument [Line Items]
Shares issued in public offering (in shares) | shares					105,000,000
Shares issued, price per share (in dollars per share) | $ / shares					$ 14.00
Proceeds from initial public offering					$ 1,406,000

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Basis of Presentation and Summary of Significant Accounting Policies - Subscriber System Assets (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Gross carrying amount	$ 4,170,741	$ 3,762,905
Accumulated depreciation	(1,264,182)	(870,222)
Subscriber system assets, net	$ 2,906,559	$ 2,892,683

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Basis of Presentation and Summary of Significant Accounting Policies - Subscriber System Depreciation Expense (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Subscriber system assets, depreciation expense	$ 137,488	$ 135,055	$ 410,236	$ 401,275

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Basis of Presentation and Summary of Significant Accounting Policies - Accrued Expenses and Other Current Liabilities (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Accrued interest	$ 144,886	$ 91,592
Payroll-related accruals	77,944	94,501
Other accrued liabilities	221,742	165,247
Accrued expenses and other current liabilities	$ 444,572	$ 351,340

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Basis of Presentation and Summary of Significant Accounting Policies - Carrying Values and Fair Values of Debt (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Reported Value Measurement
Debt Instrument [Line Items]
Debt instruments, excluding capital lease obligations	$ 9,532,794	$ 10,128,020
Estimate of Fair Value Measurement
Debt Instrument [Line Items]
Debt instruments, excluding capital lease obligations	$ 9,840,892	$ 10,868,626

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Basis of Presentation and Summary of Significant Accounting Policies - Impact of New Accounting Standard on Balance Sheet (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Jan. 01, 2018	Dec. 31, 2017
Assets
Prepaid expenses and other current assets	$ 107,364	$ 83,856	$ 77,241
Deferred subscriber acquisition costs, net		315,858
Other assets	148,242	130,288	123,967
Liabilities
Deferred tax liabilities	1,370,142	1,388,594	1,376,708
Stockholders' equity
Accumulated deficit	(1,504,054)	(963,782)	(998,212)
Calculated under Revenue Guidance in Effect before Topic 606
Assets
Prepaid expenses and other current assets	98,851		77,241
Deferred subscriber acquisition costs, net			282,478
Other assets	143,607		123,967
Liabilities
Deferred tax liabilities	1,353,393		1,376,708
Stockholders' equity
Accumulated deficit	(1,555,332)		$ (998,212)
Difference between Revenue Guidance in Effect before and after Topic 606 | Accounting Standards Update 2014-09
Assets
Prepaid expenses and other current assets	8,513	6,615
Deferred subscriber acquisition costs, net		33,380
Other assets	4,635	6,321
Liabilities
Deferred tax liabilities	16,749	11,886
Stockholders' equity
Accumulated deficit	$ 51,278	$ 34,430

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Basis of Presentation and Summary of Significant Accounting Policies - Cash and Cash Equivalents (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017	Sep. 30, 2017	Dec. 31, 2016
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Cash and cash equivalents	$ 256,917	$ 122,899
Restricted cash and cash equivalents in prepaid expenses and other current assets	3,885	3,883
Cash and cash equivalents and restricted cash and cash equivalents at end of period	$ 260,802	$ 126,782	$ 174,538	$ 90,893

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Revenue - Additional Information (Details) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2018	Sep. 30, 2017
Revenue from Contract with Customer [Abstract]
Amortization of deferred subscriber acquisition revenue	$ 21,000	$ 56,381	$ 31,470
Amortization of deferred subscriber acquisition costs	$ 16,000	$ 42,876	$ 35,457

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Revenue - Impact of New Accounting Pronouncement on Financial Statements (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue	$ 1,148,316	$ 1,082,962	$ 3,396,223	$ 3,209,970
Cost of revenue (exclusive of depreciation and amortization shown separately below)	263,286	224,140	757,905	658,095
Selling, general and administrative expenses	295,119	284,137	922,627	923,048
Depreciation and intangible asset amortization	474,772	467,929	1,446,768	1,387,245
Merger, restructuring, integration, and other	(6,708)	14,505	1,770	54,170
Operating income	121,847	92,251	267,153	187,412
Interest expense, net	(152,405)	(184,369)	(501,217)	(553,529)
Loss on extinguishment of debt	(213,239)	0	(274,836)	(4,331)
Other income	552	22,960	29,374	35,965
Loss before income taxes	(243,245)	(69,158)	(479,526)	(334,483)
Income tax benefit	7,701	7,128	19,840	38,922
Net loss	(235,544)	(62,030)	(459,686)	(295,561)
Amortization of deferred subscriber acquisition costs	16,000		42,876	35,457
Calculated under Revenue Guidance in Effect before Topic 606
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue	1,148,294		3,394,895
Cost of revenue (exclusive of depreciation and amortization shown separately below)	263,286		757,905
Selling, general and administrative expenses	302,039		943,010
Depreciation and intangible asset amortization	474,772		1,446,768
Merger, restructuring, integration, and other	(6,708)		1,770
Operating income	114,905		245,442
Interest expense, net	(152,405)		(501,217)
Loss on extinguishment of debt	(213,239)		(274,836)
Other income	552		29,374
Loss before income taxes	(250,187)		(501,237)
Income tax benefit	9,123		24,703
Net loss	(241,064)		(476,534)
Difference between Revenue Guidance in Effect before and after Topic 606 | Accounting Standards Update 2014-09
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue	22		1,328
Cost of revenue (exclusive of depreciation and amortization shown separately below)	0		0
Selling, general and administrative expenses	(6,920)		(20,383)
Depreciation and intangible asset amortization	0		0
Merger, restructuring, integration, and other	0		0
Operating income	6,942		21,711
Interest expense, net	0		0
Loss on extinguishment of debt	0		0
Other income	0		0
Loss before income taxes	6,942		21,711
Income tax benefit	(1,422)		(4,863)
Net loss	5,520		16,848
Amortization of deferred subscriber acquisition costs	5,000		14,000
Monitoring and Related Services
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue	1,029,399	1,012,292	3,069,817	3,017,026
Monitoring and Related Services | Calculated under Revenue Guidance in Effect before Topic 606
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue	1,031,006		3,074,260
Monitoring and Related Services | Difference between Revenue Guidance in Effect before and after Topic 606 | Accounting Standards Update 2014-09
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue	(1,607)		(4,443)
Installation and Other
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue	118,917	$ 70,670	326,406	$ 192,944
Installation and Other | Calculated under Revenue Guidance in Effect before Topic 606
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue	117,288		320,635
Installation and Other | Difference between Revenue Guidance in Effect before and after Topic 606 | Accounting Standards Update 2014-09
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue	$ 1,629		$ 5,771

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Revenue - Effect of New Accounting Pronouncement on Balance Sheet (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Jan. 01, 2018	Dec. 31, 2017
Assets
Prepaid expenses and other current assets	$ 107,364	$ 83,856	$ 77,241
Deferred subscriber acquisition costs, net	400,946		282,478
Other assets	148,242	130,288	123,967
Liabilities
Deferred tax liabilities	1,370,142	1,388,594	1,376,708
Stockholders' equity
Accumulated deficit	(1,504,054)	(963,782)	(998,212)
Calculated under Revenue Guidance in Effect before Topic 606
Assets
Prepaid expenses and other current assets	98,851		77,241
Deferred subscriber acquisition costs, net	346,067
Other assets	143,607		123,967
Liabilities
Deferred tax liabilities	1,353,393		1,376,708
Stockholders' equity
Accumulated deficit	(1,555,332)		$ (998,212)
Difference between Revenue Guidance in Effect before and after Topic 606 | Accounting Standards Update 2014-09
Assets
Prepaid expenses and other current assets	8,513	6,615
Deferred subscriber acquisition costs, net	54,879
Other assets	4,635	6,321
Liabilities
Deferred tax liabilities	16,749	11,886
Stockholders' equity
Accumulated deficit	$ 51,278	$ 34,430

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Revenue - Disaggregation of Revenue (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue	$ 1,148,316	$ 1,082,962	$ 3,396,223	$ 3,209,970
Monitoring and Related Services
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue	1,029,399	1,012,292	3,069,817	3,017,026
Installation and Other
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue	$ 118,917	$ 70,670	$ 326,406	$ 192,944

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Acquisitions (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2018 USD ($) business	Sep. 30, 2017 USD ($)	Dec. 31, 2017 USD ($)
Business Acquisition [Line Items]
Acquisition of businesses, net of cash acquired	$ 48,473	$ 31,810
Goodwill	5,088,325		$ 5,070,586
Dealer generated customer accounts and bulk account purchases	$ 526,654	$ 486,037
Series of Individually Immaterial Business Acquisitions
Business Acquisition [Line Items]
Number of businesses acquired | business	4
Acquisition of businesses, net of cash acquired	$ 48,000
Goodwill	23,000
Series of Individually Immaterial Business Acquisitions | Customer Relationships
Business Acquisition [Line Items]
Finite-lived intangible assets acquired	$ 20,000

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Goodwill and Other Intangible Assets - Gross Carrying Amounts and Accumulated Amortization of Other Intangible Assets (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	$ 9,084,584	$ 8,549,628
Accumulated Amortization	(2,929,466)	(2,025,853)
Net Carrying Amount	6,155,118	6,523,775
Indefinite-lived Intangible Assets [Line Items]
Gross Carrying Amount	10,417,584	9,882,628
Net Carrying Amount	7,488,118	7,856,775
Trade name
Indefinite-lived Intangible Assets [Line Items]
Gross Carrying Amount	1,333,000	1,333,000
Customer-Related Intangible Assets
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	7,284,196	6,748,355
Accumulated Amortization	(2,545,113)	(1,749,327)
Net Carrying Amount	4,739,083	4,999,028
Dealer Relationships
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	1,603,490	1,605,910
Accumulated Amortization	(209,915)	(146,299)
Net Carrying Amount	1,393,575	1,459,611
Other Intangible Assets
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	196,898	195,363
Accumulated Amortization	(174,438)	(130,227)
Net Carrying Amount	$ 22,460	$ 65,136

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Goodwill and Other Intangible Assets - Additional Information (Details)	9 Months Ended
	Sep. 30, 2018
Customer-Related Intangible Assets
Acquired Finite-Lived Intangible Assets [Line Items]
Acquired finite-lived intangible assets, weighted average useful life	15 years

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Goodwill and Other Intangible Assets - Changes in Net Carrying Amount of Contracts and Related Customer Relationships (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Finite-lived Intangible Assets [Roll Forward]
Balance as of beginning of period			$ 6,523,775
Amortization	$ (293,535)	$ (292,023)	(906,233)	$ (864,918)
Balance as of end of period	6,155,118		6,155,118
Customer-Related Intangible Assets
Finite-lived Intangible Assets [Roll Forward]
Balance as of beginning of period			4,999,028
Amortization			(798,267)
Currency translation and other			(7,653)
Balance as of end of period	$ 4,739,083		4,739,083
Customer Relationships
Finite-lived Intangible Assets [Roll Forward]
Customer contract additions, net of dealer charge-backs			20,246
Contract-Based Intangible Assets
Finite-lived Intangible Assets [Roll Forward]
Customer contract additions, net of dealer charge-backs			$ 525,729

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Goodwill and Other Intangible Assets - Finite-lived Intangible Assets Amortization Expense (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Goodwill and Intangible Assets Disclosure [Abstract]
Definite-lived intangible asset amortization expense	$ 293,535	$ 292,023	$ 906,233	$ 864,918

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Goodwill and Other Intangible Assets - Schedule of Finite-Lived Intangible Assets, Future Amortization Expense (Details) $ in Thousands	Sep. 30, 2018 USD ($)
Goodwill and Intangible Assets Disclosure [Abstract]
Remainder of 2018	$ 295,632
2019	1,143,309
2020	1,089,492
2021	987,260
2022	640,412
2023	$ 284,929

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Debt (Details) - USD ($)		3 Months Ended		9 Months Ended
	Feb. 21, 2018	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Mar. 15, 2018	Feb. 22, 2018
Debt Instrument [Line Items]
Loss on extinguishment of debt		$ 213,239,000	$ 0	$ 274,836,000	$ 4,331,000
2021 Revolving Credit Facility | Revolving Credit Facility
Debt Instrument [Line Items]
Maximum borrowing capacity						$ 255,000,000
2020 Revolving Credit Facility | Revolving Credit Facility
Debt Instrument [Line Items]
Maximum borrowing capacity						$ 95,000,000
2023 Revolving Credit Facility | Revolving Credit Facility
Debt Instrument [Line Items]
Maximum borrowing capacity		350,000,000		350,000,000
Remaining borrowing capacity		$ 350,000,000		$ 350,000,000
2023 Revolving Credit Facility | Revolving Credit Facility | Federal Funds Effective Swap Rate
Debt Instrument [Line Items]
Variable rate on which basis spread is calculated				0.50%
2023 Revolving Credit Facility | Revolving Credit Facility | London Interbank Offered Rate (LIBOR)
Debt Instrument [Line Items]
Variable rate on which basis spread is calculated				1.00%
Basis spread on variable rate				2.75%
2023 Revolving Credit Facility | Revolving Credit Facility | Base Rate
Debt Instrument [Line Items]
Basis spread on variable rate				1.75%
2023 Revolving Credit Facility | Revolving Credit Facility | Minimum
Debt Instrument [Line Items]
Commitment fee percentage				0.375%
2023 Revolving Credit Facility | Revolving Credit Facility | Maximum
Debt Instrument [Line Items]
Commitment fee percentage				0.50%
Prime Notes | Senior Notes
Debt Instrument [Line Items]
Repayments of senior debt	$ 649,000,000
Repurchased face amount	594,000,000
Loss on extinguishment of debt	$ 62,000,000
Long-term debt, gross							$ 2,546,000,000

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Mandatorily Redeemable Preferred Securities (Details) - USD ($) $ in Thousands			1 Months Ended	3 Months Ended		9 Months Ended
	Jul. 02, 2018	May 08, 2018	Jan. 31, 2018	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Related Party Transaction [Line Items]
Loss on extinguishment of debt				$ 213,239	$ 0	$ 274,836	$ 4,331
Mandatorily Redeemable Preferred Stock
Related Party Transaction [Line Items]
Financial instruments subject to mandatory redemption, settlement terms, number of shares (in shares)								750,000
Increase (decrease) in restricted cash			$ 750,000
Dividend rate plus 5-year treasury rate						9.00%
Dividend rate plus 5-year treasury rate if dividend is not paid						9.75%
Mandatorily Redeemable Preferred Stock | Koch
Related Party Transaction [Line Items]
Face amount	$ 750,000
Payments for repurchase of trust preferred securities	949,000
Payment for Repurchase of Trust Preferred Securities, Premiums and Tax	103,000
Loss on extinguishment of debt				$ 213,000		$ 213,000
Maximum distribution amount in event of common stock dividend		$ 27,000	$ 50,000
Mandatorily Redeemable Preferred Stock | Koch | Affiliated Entity
Related Party Transaction [Line Items]
Payments of dividends	$ 96,000				$ 22,000	$ 51,000	$ 63,000

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Income Taxes (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Income Tax Disclosure [Abstract]
Unrecognized tax benefits, increase	$ 13,000
Income tax benefit	$ 7,701	$ 7,128	$ 19,840	$ 38,922
Effective tax rate	3.20%	10.30%	4.10%	11.60%
Preferred securities, tax impact	11.20%		11.60%
State and local income taxes, tax impact	4.90%		4.20%
Change in unrecognized tax benefits, tax impact	5.60%
Share-based compensation cost, tax impact			7.30%
Prior year taxes, tax impact			5.60%

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Commitments and Contingencies (Details)	9 Months Ended
	Sep. 30, 2018 USD ($) claim	Jan. 19, 2018 claim	Sep. 30, 2017 USD ($)
Loss Contingencies [Line Items]
Indefinite-lived trademarks | $			$ 987,000,000
Wireless Encryption Litigation
Loss Contingencies [Line Items]
Number of claims	5
Wireless Encryption Litigation, Federal
Loss Contingencies [Line Items]
Number of claims	3
Wireless Encryption Litigation, State
Loss Contingencies [Line Items]
Number of claims	2
Shareholder Litigation
Loss Contingencies [Line Items]
Number of claims		5
Tyco International
Loss Contingencies [Line Items]
Liability threshold | $	$ 500,000,000
Tax liability sharing percent	27.00%

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Derivative Financial Instruments (Details) - USD ($) $ in Billions	Sep. 30, 2018	Aug. 31, 2018	Jun. 30, 2018	Apr. 30, 2017
Derivative [Line Items]
Derivative, notional amount	$ 3.5
Designated as Hedging Instrument
Derivative [Line Items]
Derivative, notional amount		$ 1.0	$ 1.5
Not Designated as Hedging Instrument
Derivative [Line Items]
Derivative, notional amount				$ 1.0

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Share-based Compensation - Additional Information (Details) $ / shares in Units, $ in Thousands, shares in Millions	1 Months Ended	3 Months Ended			9 Months Ended
	Jan. 31, 2018 shares	Sep. 30, 2018 USD ($) shares	Mar. 31, 2018 $ / shares shares	Sep. 30, 2017 USD ($)	Sep. 30, 2018 USD ($) tranche $ / shares shares	Sep. 30, 2017 USD ($)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation expense | $		$ 18,000		$ 4,000	$ 112,905	$ 8,498
Common Class B
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of tranches | tranche					2
Shares issued (in shares)			20.6
Number of nonvested shares (in shares)			17.8
Percent with service award vesting conditions			50.00%
Percent with performance award vesting conditions			50.00%
Risk free interest rate			2.43%
Expected volatility rate			30.00%
2016 Equity Incentive Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation expense | $		$ 0		0	$ 0	0
Initial Public Offering, Performance Tranche
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of nonvested shares (in shares)		10.2			10.2
Grant date fair value (in dollars per share) | $ / shares			$ 12.97
Service period			3 years
Share-based compensation expense | $		$ 6,000			$ 29,000
Initial Public Offering, Performance Tranche | Common Class B
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period					5 years
Top-up Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Risk free interest rate	2.43%
Expected volatility rate	30.00%
Service period	3 years
Options, granted in period (in shares)	12.7
Contractual term	10 years
Expected dividend yield	1.00%
Initial Public Offering, Service Tranche
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Grant date fair value (in dollars per share) | $ / shares			$ 14.00
Share-based compensation expense | $		2,000			$ 28,000
Top-up Options, Service-based
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation expense | $		2,000			$ 32,000
Weighted average fair value (in dollars per share) | $ / shares					$ 5.02
Top-up Options, Performance-based
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation expense | $		$ 2,000			$ 7,000
Weighted average fair value (in dollars per share) | $ / shares					$ 5.04
Nonvested options outstanding (in shares)		6.3			6.3
2018 Omnibus Incentive Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period					3 years
Share-based compensation expense | $		$ 0		$ 0	$ 0	$ 0
Contractual term			10 years
2018 Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Risk free interest rate			2.52%
Expected volatility rate			30.00%
Options, granted in period (in shares)			4.0
Expected dividend yield			1.00%
Weighted average fair value (in dollars per share) | $ / shares			$ 4.35
Nonvested options outstanding (in shares)		3.8			3.8
Expected average exercise term			6 years 6 months
2018 RSUs
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of nonvested shares (in shares)		1.0			1.0
Grant date fair value (in dollars per share) | $ / shares			$ 14.00
RSUs granted in period (in shares)			1.1

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Equity - Schedule of Dividends Declared (Details) - $ / shares				3 Months Ended		9 Months Ended
	Aug. 08, 2018	May 09, 2018	Mar. 15, 2018	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Equity [Abstract]
Cash dividends declared per common share (in dollars per share)	$ 0.035	$ 0.035	$ 0.035	$ 0.035	$ 0	$ 0.105	$ 1.170

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Equity - Additional Information (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Jan. 01, 2018	Dec. 31, 2017
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Payments of dividends	$ 52,959	$ 749,999
Accumulated deficit	(1,504,054)		$ (963,782)	$ (998,212)
Accounting Standards Update 2014-09 | Difference between Revenue Guidance in Effect before and after Topic 606
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Accumulated deficit	$ 51,278		$ 34,430

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Net Loss per Share - Computation of Basic and Diluted Earnings Per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Numerator:
Net loss	$ (235,544)	$ (62,030)	$ (459,686)	$ (295,561)
Denominator:
Weighted-average number of shares outstanding, basic and diluted (in shares)	755,277	641,088	744,720	641,061
Net loss per share, basic and diluted (in dollars per share)	$ (0.31)	$ (0.10)	$ (0.62)	$ (0.46)

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Related Party Transactions (Details) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Related Party Transaction [Line Items]
Payments of dividends		$ 52,959	$ 749,999
Management | Apollo Management Holdings, L.P.
Related Party Transaction [Line Items]
Management fee expense	$ 5,000	1,000	15,000
Management | Prime Security Services TopCo Parent, LP [Member]
Related Party Transaction [Line Items]
Payments of dividends			750,000
Affiliated Entity | Koch | Structuring Fees
Related Party Transaction [Line Items]
Amounts of transaction			45,000
Affiliated Entity | Apollo Global Securities, LLC
Related Party Transaction [Line Items]
Payments of stock issuance costs		$ 2,000
Amounts of transaction			$ 1,000
Affiliated Entity | Apollo Global Securities, LLC | Over-Allotment Option
Related Party Transaction [Line Items]
Shares issued in public offering (in shares)		4,200,000

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Subsequent Events (Details) - USD ($)						3 Months Ended		9 Months Ended
	Nov. 07, 2018	Oct. 24, 2018	Aug. 08, 2018	May 09, 2018	Mar. 15, 2018	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Subsequent Event [Line Items]
Cash dividends declared per common share (in dollars per share)			$ 0.035	$ 0.035	$ 0.035	$ 0.035	$ 0	$ 0.105	$ 1.170
Subsequent Event
Subsequent Event [Line Items]
Cash dividends declared per common share (in dollars per share)	$ 0.035
Red Hawk Fire & Security | Subsequent Event
Subsequent Event [Line Items]
Payments to acquire businesses, gross		$ 317,500,000
First Lien Credit Agreement | Subsequent Event
Subsequent Event [Line Items]
Maximum borrowing capacity		$ 317,500,000