ADT Inc 8-K, filed Jan 16, 2020
ADT Inc. (ADT)
About this 8-K
ADT Inc filed this 8-K on January 16, 2020.
Items reported
- Item 7.01: Regulation FD disclosure
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
CURRENT REPORT
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| Item 7.01 | Regulation FD Disclosure. |
Notes Offerings
On January 16, 2020, ADT Inc. (the “Company”) announced that Prime Security Services Borrower, LLC (the “Issuer”) and Prime Finance Inc. (the “Co-Issuer” and, collectively with the Issuer, the “Issuers”), its indirect wholly owned subsidiaries, are proposing to offer $1,300 million aggregate principal amount of second-priority senior secured notes due 2028 in a private transaction pursuant to Rule 144A and/or Regulation S under the Securities Act of 1933, as amended (the “Securities Act”) (the “Offering”). The Offering is subject to market and other conditions, may be delayed or may not occur as described or at all.
A copy of the press release announcing the Offering is attached to this report as Exhibit 99.1 and incorporated by reference herein.
Conditional Notice of Redemption of the Prime Notes
In addition, on January 16, 2020, the Issuers delivered a Conditional Notice of Redemption (the “Redemption Notice”) with respect to their outstanding 9.250% Second-Priority Senior Secured Notes due 2023 (the “Prime Notes”). The Redemption Notice was issued pursuant to the terms of the Indenture, dated as of May 2, 2016, as amended (the “Indenture”), between the Issuers and Wells Fargo Bank, National Association, as trustee, and provides for the redemption by the Issuers, subject to the condition described below, of all of the outstanding Prime Notes on February 15, 2020 (the “Redemption Date”) at a redemption price (the “Redemption Price”) of $1,046.25 per $1,000 of outstanding principal amount of the Prime Notes plus the accrued and unpaid interest on the Prime Notes so redeemed (the “Redemption”).
The redemption of the Prime Notes is conditioned upon the completion of the Offering on terms and conditions satisfactory to the Issuers (the “Financing Condition”).
In the Issuers’ discretion, the Redemption Date may be delayed until such time as the Financing Condition shall be satisfied. In the Issuers’ discretion, if the Financing Condition is not satisfied on or prior to the Redemption Date (or by the Redemption Date as so delayed), the Redemption Notice may be rescinded by the Issuer and shall be of no effect. The Financing Condition is subject to market and other conditions, and may not occur as described or at all. As a result, there can be no assurance that the Redemption will occur on February 15, 2020 or at all.
Recent Developments
Our consolidated financial statements for the year ended December 31, 2019 are not yet available. The Company is reiterating its financial outlook ranges for full-year 2019. These financial outlook ranges include Total Revenue of $5.00 billion to $5.15 billion, Adjusted EBITDA of $2.47 billion to $2.50 billion, Free Cash Flow before special items of $570 million to $610 million and Gross Customer Revenue Attrition of approximately 13.5%. Our financial closing procedures for the three months and year ended December 31, 2019 are not yet complete. As a result, our actual results for the year ended December 31, 2019 may differ materially from the preliminary estimated financial results included in our financial outlook ranges for full-year 2019 upon the completion of our financial closing procedures, final adjustments, and other developments that may arise prior to the time our 2019 financial results are finalized.
The Company is not providing a quantitative reconciliation of its financial outlook for Adjusted EBITDA and Free Cash Flow before special items to net income (loss) and net cash provided by operating activities, which are their respective corresponding GAAP measures, because these GAAP measures that are excluded from the Company’s non-GAAP financial outlook are difficult to reliably predict or estimate without unreasonable effort due to their dependence on future uncertainties. Additionally, information that is currently not available to the Company could have a potentially unpredictable and potentially significant impact on its future GAAP financial results.
The Company is also disclosing under Item 7.01 of this Current Report on Form 8-K the information attached to this report as Exhibit 99.2, which information is incorporated by reference herein. This information, which has not been previously reported, was provided on January 16, 2020, to potential investors.
The information in this Item 7.01 and the exhibits hereto is furnished solely pursuant to Item 7.01 of this Form 8-K. Consequently, it is not deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) or otherwise subject to the liabilities of that section. It may only be incorporated by reference in another filing under the Exchange Act or Securities Act, if such subsequent filing specifically references this Form 8-K.
Forward Looking Statements
ADT has made statements in this filing and other reports, filings, and other public written and verbal announcements that are forward-looking and therefore subject to risks and uncertainties. All statements, other than statements of historical fact, included in this document are, or could be, “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and are made in reliance on the safe harbor protections provided thereunder. These forward-looking statements relate to anticipated financial performance, management’s plans and objectives for future operations, business prospects, outcome of regulatory proceedings, market conditions, and other matters. Any forward-looking statement made in this filing speaks only as of the date on which it is made. ADT undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise. Forward-looking statements can be identified by various words such as “expects,” “intends,” “will,” “anticipates,” “believes,” “confident,” “continue,” “propose,” “seeks,” “could,” “may,” “should,” “estimates,” “forecasts,” “might,” “goals,” “objectives,” “targets,” “planned,” “projects,” and similar expressions. These forward-looking statements are based on management’s current beliefs and assumptions and on information currently available to management. ADT cautions that these statements are subject to risks and uncertainties, many of which are outside of ADT’s control and could cause future events or results to be materially different from those stated or implied in this document, or to occur at all, including among others, risk factors that are described in the ADT Annual Report on Form 10-K and other filings with the Securities and Exchange Commission, including the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained therein.
| Item 9.01 | Financial Statements and Exhibits. |
(d) Exhibits.
| Exhibit No. |
Document | |||
| 99.1 |
Press Release, dated January 16, 2020 announcing the Notes Offering | |||
| 99.2 |
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| 104 |
Cover Page Interactive Data File (embedded within the Inline XBRL document). | |||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Date: January 16, 2020 |
ADT Inc. | |||||
| By: |
/s/ Jeffrey Likosar | |||||
| Jeffrey Likosar | ||||||
| Chief Financial Officer | ||||||
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Exhibit 99.1
ADT Inc. Announces Notes Offering to Refinance 9.250% Second-Priority Senior Secured Notes due 2023
BOCA RATON, Fla., Jan. 16, 2020 (GLOBE NEWSWIRE) – ADT Inc. (NYSE: ADT) (the “Company” or “ADT”), a leading provider of security, automation, and smart home solutions serving consumer and business customers in the United States, announced that Prime Security Services Borrower, LLC (the “Issuer”) and Prime Finance Inc. (the “Co-Issuer” and, together with the Issuer, the “Issuers”), its indirect wholly owned subsidiaries, are proposing to issue and sell $1,300 million aggregate principal amount of second-priority senior secured notes due 2028 (the “Notes”) in an offering that will be exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”) (the “Offering”).
In addition, the Issuers delivered a Conditional Notice of Redemption to holders of the Issuers’ outstanding 9.250% Second-Priority Senior Secured Notes due 2023 (the “Prime Notes”), which provides for the redemption by the Issuers of any and all of the outstanding Prime Notes on February 15, 2020 (the “Redemption Date”) at a redemption price (the “Redemption Price”) of $1,046.25 per $1,000 of outstanding principal amount of the Prime Notes plus the accrued and unpaid interest on the Prime Notes so redeemed (the “Redemption”), subject to the consummation of the Offering on terms and conditions satisfactory to the Issuers (the “Financing Condition”).
In the Issuers’ discretion, the Redemption Date may be delayed until such time as the Financing Condition shall be satisfied. In the Issuers’ discretion, if the Financing Condition is not satisfied on or prior to the Redemption Date (or by the Redemption Date as so delayed), the Redemption Notice may be rescinded by the Issuer and shall be of no effect. The Financing Condition is subject to market and other conditions, and may not occur as described or at all. As a result, there can be no assurance that the Redemption will occur on February 15, 2020 or at all.
The Issuers expect to use the proceeds from the Offering, along with cash on hand and borrowings under their revolving credit facility, to (i) redeem the outstanding $1,246 million aggregate principal amount of Prime Notes in full and (ii) pay related fees and expenses in connection with the transactions.
The Notes are being offered only to persons reasonably believed to be qualified institutional buyers in reliance on Rule 144A under the Securities Act, and outside the United States, only to non-U.S. investors pursuant to Regulation S. The Notes will not be registered under the Securities Act or the securities laws of any other jurisdiction and may not be offered or sold in the United States absent an effective registration statement or an applicable exemption from registration requirements or a transaction not subject to the registration requirements of the Securities Act or any state securities laws.
This press release shall not constitute an offer to sell or the solicitation of an offer to buy any security and shall not constitute an offer, solicitation or sale in any jurisdiction in which such offering, solicitation or sale would be unlawful. This press release is being issued pursuant to and in accordance with Rule 135c under the Securities Act.
About ADT
ADT is a leading provider of security, automation, and smart home solutions serving consumer and business customers through more than 200 locations, 9 monitoring centers, and the largest network of security professionals in the United States. The Company offers many ways to help protect customers by delivering lifestyle-driven solutions via professionally installed, do-it-yourself, mobile, and digital-based offerings for residential, small business, and larger commercial customers. For more information, please visit www.adt.com or follow on Twitter, LinkedIn, Facebook, and Instagram.
Forward-Looking Statements
ADT has made statements in this press release and other reports, filings, and other public written and verbal announcements that are forward-looking and therefore subject to risks and uncertainties. All statements, other than statements of historical fact, included in this document are, or could be, “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and are made in reliance on the safe harbor protections provided thereunder. These forward-looking statements relate to anticipated financial performance, management’s plans and objectives for future operations, business prospects, outcome of regulatory proceedings, market conditions and other matters. Any forward-looking statement made in this press release speaks only as of the date on which it is made. ADT undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise. Forward-looking statements can be identified by various words such as “expects,” “intends,” “will,” “anticipates,” “believes,” “confident,” “continue,” “propose,” “seeks,” “could,” “may,” “should,” “estimates,” “forecasts,” “might,” “goals,” “objectives,” “targets,” “planned,” “projects,” and similar expressions. These forward-looking statements are based on management’s current beliefs and assumptions and on information currently available to management. ADT cautions that these statements are subject to risks and uncertainties, many of which are outside of ADT’s control, and could cause future events or results to be materially different from those stated or implied in this document, including among others, risk factors that are described in the Company’s Annual Report on Form 10-K and other filings with the Securities and Exchange Commission, including the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained therein.
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Investor Relations:
Jason Smith – ADT
investorrelations@adt.com
Tel: 888-238-8525
Media Relations
Paul Wiseman
paulwiseman@adt.com
Tel: 561-356-6388
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Exhibit 99.2
Recent Developments
Preliminary Fiscal 2019 Results
Our consolidated financial statements for the year ended December 31, 2019 are not yet available. Based on our preliminary results, we anticipate that total revenue for the fiscal year ended December 31, 2019 to be between $5.00 billion and $5.15 billion. Adjusted EBITDA for the fiscal year ended December 31, 2019 is anticipated to be between $2.47 billion and $2.50 billion, and Free Cash Flow before special items for the fiscal year ended December 31, 2019 is anticipated to be between $570 million and $610 million. In addition, gross customer revenue attrition for the fiscal year ended December 31, 2019 is anticipated to be approximately 13.5%. These preliminary results are consistent with our previously issued full-year 2019 guidance. Our financial closing procedures for the three months and year ended December 31, 2019 are not yet complete. As a result, our actual results for the year ended December 31, 2019 may differ materially from the preliminary estimated financial results included in our financial outlook ranges for full-year 2019 upon the completion of our financial closing procedures, final adjustments, and other developments that may arise prior to the time our financial results are finalized. All of the range data presented above is preliminary and unaudited, based upon our estimates, and subject to further internal review by our management and compilation of actual results. We have provided estimated ranges for this data primarily because our closing procedures for the quarter ended December 31, 2019 are not yet complete and we have not generated data for the full quarter. Our management’s estimates are based upon monthly information currently available to us and extrapolation from such information. While we expect that our results will be within these ranges, our actual results may differ materially from these preliminary estimates. The preliminary estimated financial data included in this offering memorandum has been prepared by, and is the responsibility of our management.
The Company is not providing a quantitative reconciliation of its financial outlook for Adjusted EBITDA and Free Cash Flow before special items to net income (loss) and net cash provided by operating activities, which are their respective corresponding GAAP measures, because these GAAP measures that are excluded from the Company’s non-GAAP financial outlook are difficult to reliably predict or estimate without unreasonable effort due to their dependence on future uncertainties, such as special items discussed herein under the heading “Use of Non-GAAP Financial Information—Adjusted EBITDA” and “Use of Non-GAAP Financial Information—Free Cash Flow.” Additionally, information that is currently not available to the Company could have a potentially unpredictable and potentially significant impact on its future GAAP financial results. The preliminary financial and operating results for the fiscal year ended December 31, 2019 are forward-looking statements based on preliminary estimates and reflect the best judgment of our management but involve a number of risks and uncertainties which could cause actual results to differ materially from those set forth in our estimates and from past results, performance or achievements. Such preliminary results are subject to finalization of our quarterly and annual financial and accounting procedures and should not be viewed as a substitute for full financial statements prepared in accordance with GAAP. Consequently, there can be no assurances that the actual financial and operating results for the fiscal year ended December 31, 2019 will be identical to the preliminary estimates set forth above, and any variation between our actual results and the estimates set forth above may be material. In addition, such results do not purport to indicate our results of operations for any future period beyond the fiscal year ended December 31, 2019.
Adjusted EBITDA and Covenant Adjusted EBITDA (Pre-SAC) are non-GAAP measures that we believe is useful to investors to measure the operational strength and performance of our business and 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 and Covenant Adjusted EBITDA (Pre-SAC) provide a meaningful measure of operating profitability because we use it for evaluating our business performance, making budgeting decisions, and comparing our performance against that of other peer companies using similar measures.
We define Adjusted EBITDA as net income or loss adjusted for (i) interest, (ii) taxes, (iii) depreciation and amortization, including depreciation of subscriber system assets and other fixed assets and amortization of dealer and other intangible assets, (iv) amortization of deferred costs and deferred revenue associated with subscriber acquisitions, (vi) merger, restructuring, integration, and other, (vii) losses on extinguishment of debt, (viii) radio conversion costs, (ix) financing and consent fees, (x) foreign currency gains/losses, (xi) acquisition related adjustments, and (xii) other charges and non-cash items. We define Covenant Adjusted EBITDA (Pre-SAC) as Adjusted EBITDA adjusted for costs in our statement of operations associated with the acquisition of customers, net of revenue associated with the sale of equipment (expensed net SAC).
There are material limitations to using Adjusted EBITDA and Covenant Adjusted EBITDA (Pre-SAC). Adjusted EBITDA do not take into account certain significant items, including depreciation and amortization, interest, taxes, and other adjustments, including subscriber acquisition costs, 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 and Covenant Adjusted EBITDA (Pre-SAC) in conjunction with net income as calculated in accordance with GAAP.
The table below reconciles Adjusted EBITDA and Covenant Adjusted EBITDA (Pre-SAC) to net (loss) income for the periods presented.
| Twelve Months Ended September 30, 2019 |
Nine Months Ended September 30, |
Years Ended December 31, | ||||||||||||||||||||||
| (in thousands) | 2019 | 2018 | 2018 | 2017 | 2016 | |||||||||||||||||||
| Net (loss) income |
$ | (501,626 | ) | $ | (352,157 | ) | $ | (459,686 | ) | $ | (609,155 | ) | $ | 342,627 | $ | (536,587 | ) | |||||||
| Interest expense, net |
627,964 | 465,977 | 501,217 | 663,204 | 732,841 | 521,491 | ||||||||||||||||||
| Income tax benefit |
(85,199 | ) | (81,576 | ) | (19,840 | ) | (23,463 | ) | (764,313 | ) | (266,151 | ) | ||||||||||||
| Depreciation and intangible asset amortization |
1,986,735 | 1,502,574 | 1,446,768 | 1,930,929 | 1,863,299 | 1,232,967 | ||||||||||||||||||
| Amortization of deferred subscriber acquisition costs |
75,596 | 58,544 | 42,876 | 59,928 | 51,491 | 16,769 | ||||||||||||||||||
| Amortization of deferred subscriber acquisition revenue |
(101,261 | ) | (78,506 | ) | (56,381 | ) | (79,136 | ) | (46,454 | ) | (10,717 | ) | ||||||||||||
| Share-based compensation expense |
87,233 | 65,126 | 112,905 | 135,012 | 11,276 | 4,625 | ||||||||||||||||||
| Merger, restructuring, integration and other |
17,955 | 23,069 | 1,770 | (3,344 | ) | 64,828 | 393,788 | |||||||||||||||||
| Goodwill impairment |
133,444 | 45,482 | — | 87,962 | — | — | ||||||||||||||||||
| Loss on business held for sale |
55,489 | 55,489 | — | — | — | — | ||||||||||||||||||
| Loss on extinguishment of debt |
103,004 | 103,004 | 274,836 | 274,836 | 4,331 | 28,293 | ||||||||||||||||||
| Radio conversion costs(a) |
12,985 | 12,637 | 4,751 | 5,099 | 12,244 | 34,405 | ||||||||||||||||||
| Financing and consent fees(b) |
32,136 | 23,279 | — | 8,857 | 63,593 | 5,302 | ||||||||||||||||||
| Foreign currency losses / (gains)(c) |
1,580 | (531 | ) | 1,117 | 3,228 | (23,804 | ) | 16,042 | ||||||||||||||||
| Acquisition related adjustments(d) |
21,737 | 16,725 | 11,166 | 16,178 | 2,588 | 62,845 | ||||||||||||||||||
| Licensing fees(e) |
— | — | (21,533 | ) | (21,533 | ) | — | — | ||||||||||||||||
| Other(f) |
12,068 | 16,914 | (49 | ) | (4,895 | ) | 38,256 | 29,817 | ||||||||||||||||
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| Adjusted EBITDA(g) |
$ | 2,489,630 | $ | 1,876,050 | $ | 1,839,917 | $ | 2,453,497 | $ | 2,352,803 | $ | 1,532,889 | ||||||||||||
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| Subscriber acquisition costs, net(h) |
285,107 | 216,507 | 227,117 | 295,717 | 334,764 | 272,351 | ||||||||||||||||||
| Covenant Adjusted EBITDA (Pre-SAC)(i) |
$ | 2,774,737 | $ | 2,092,557 | $ | 2,067,034 | $ | 2,749,214 | $ | 2,687,567 | $ | 1,805,240 | ||||||||||||
| (a) | Represents costs associated with upgrading cellular technology used in many of our security systems, offset by any incremental revenue earned. |
| (b) | Represents fees incurred associated with the issuance, restatement, and amendment of debt. |
| (c) | Represents the conversion of intercompany loans that are denominated in Canadian dollars to U.S. dollars. |
| (d) | Represents amortization of purchase accounting adjustments and compensation arrangements related to acquisitions. |
| (e) | The year ended December 31, 2018 and the nine months ended September 30, 2018 include other income related to approximately $22 million of one-time licensing fees. |
| (f) | Represents certain advisory and other costs associated with our transition to a public company as well as other charges and non-cash items. The nine months ended September 30, 2019 include an estimated legal settlement, net of insurance, of $6 million. The nine months ended September 30, 2018 and the year ended December 31, 2018 include a gain of $7.5 million from the sale of equity in a third party that we received as part of a settlement. The years ended December 31, 2017 and 2016 include fees of $20 million and $13 million, respectively, under a management consulting agreement, which was terminated in connection with the consummation of the initial public offering. |
| (g) | Does not give effect to (a) the disposition of ADT Security Services Canada, Inc. (“ADT Canada”), which we consummated on November 5, 2019, or (b) the acquisition of Defenders Holdings, Inc. (“Defenders”), which we consummated on January 6, 2020. For more information on the disposition of ADT Canada, refer to our Current Report on Form 8-K, filed with the Securities and Exchange Commission on November 12, 2019, including the unaudited pro forma condensed consolidated financial information of the Company and its subsidiaries giving effect to the disposition of ADT Canada that were filed as Exhibit 99.1 thereto. Prior to the acquisition, the cost of acquiring accounts from Defenders was capitalized. Subsequent to the acquisition, account generation costs will be expensed all or in part. As a result, while we are unable to quantify the impact currently, we expect that this change will have a negative impact on our Adjusted EBITDA, and we expect such impact to be material. We do not expect that these two transactions in aggregate will have a significant impact on Free Cash Flow before special items. |
| (h) | Represents expensed costs associated with the acquisition of new customers, net of revenue associated with the sale of equipment. |
| (i) | Does not give effect to (a) the disposition of ADT Canada, which we consummated on November 12, 2019, or (b) the acquisition of Defenders, which we consummated on January 6, 2020. For more information on the disposition of ADT Canada, refer to our Current Report on Form 8-K, filed with the Securities and Exchange Commission on November 5, 2019, including the unaudited pro forma condensed consolidated financial information of the Company and its subsidiaries giving effect to the disposition of ADT Canada that were filed as Exhibit 99.1 thereto. We do not expect that the acquisition of Defenders will impact Covenant Adjusted EBITDA (Pre-SAC), which includes gross subscriber acquisition cost expenses, net. We do not expect that these two transactions in aggregate will have a significant impact on our Free Cash Flow before special items. |
As a public company, we are obligated to develop and maintain proper and effective internal control over financial reporting and any failure to do so may adversely affect investor confidence in us and, as a result, the trading price of the notes. We have not yet completed our 2019 assessment of the effectiveness of Internal Control Over Financial Reporting (ICFR).
As required by the Sarbanes Oxley Act of 2002 and commencing with the fiscal year ending December 31, 2019, we are required to have our independent registered public accounting firm perform an integrated audit that includes an assessment by them of the effectiveness of ICFR. The Company has not yet completed its testing and assessment of the effectiveness of the Company’s ICFR as of December 31, 2019. As the Company completes its year end procedures, including its assessment of controls, it may determine that there are one or more significant deficiencies or material weaknesses in its ICFR.
If our senior management is unable to conclude we have effective ICFR, and our independent registered public accounting firm cannot render an unqualified opinion on the effectiveness of our ICFR, we may not be able to accurately report our financial results, or report them in a timely manner and we could be subject to regulatory scrutiny, a loss of public and investor confidence, and to litigation from investors and stockholders, all of which could have a material adverse effect on our business and the trading price of the notes. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, also could restrict our future access to the capital markets.