# ADT Inc. (ADT) — Financial Analysis

**Exchange:** NYSE  
**Coverage as of:** 2026-Q2  
**Updated:** 2026-06-03  
**Tier:** Free primer (step 2 of 19)  
**Sibling pages:** /stocks/ADT/thesis · /stocks/ADT/memo

## Financial Snapshot

---
source: coverage-next-full
step: 04
ticker: ADT
title: Financial Quality & Adversarial Sweep
---

### Step 04 — Financial Quality & Adversarial Sweep: ADT Inc. (ADT)

*Note: Earnings transcript analysis was not performed — this is the filings-and-consensus path. Financial analysis derived from SEC XBRL, 10-K filings, StockAnalysis.com, and press releases.*

#### 1. Financial Statement Quality Assessment

##### 1.1 Revenue Recognition

ADT recognizes revenue in two streams:
- **M&S Revenue:** Recognized ratably over the service period — straightforward, low risk of manipulation [S1]
- **Installation Revenue:** Recognized at point of installation completion — some judgment around contract modifications and bundled arrangements

**Quality: High.** M&S is ratable and transparent. Installation accounting is well-disclosed and audited.

##### 1.2 Subscriber System Asset Accounting

This is ADT's most complex accounting area. Equipment installed at customer homes is capitalized as "subscriber system assets" on ADT's balance sheet (gross: ~$6.9B, net: ~$3.0B) and amortized over estimated useful life (15–20 years) [S2].

**Risk: Moderate.** The amortization period assumption is a key estimate. Extending amortization life would boost GAAP earnings. ADT's policy appears consistent with industry practice.

**Watch item:** As ADT migrates customers to ADT+ hardware (Google Nest-compatible), the older installed base may become impaired ahead of schedule. No impairment has been recognized as of FY2025 [S2].

##### 1.3 Goodwill & Intangibles

| Item | Value |
|------|-------|
| Goodwill | ~$5.0B [S3] |
| Customer relationships intangibles | ~$4.5B |
| Total intangibles | ~$9.8B |

Goodwill largely reflects the 2018 Apollo leveraged buyout premium. Customer relationship intangibles are amortized over ~15 years. Annual impairment testing is required. No impairment has been recorded post-IPO.

**Risk: Moderate.** If ADT's subscriber base erodes faster than projected, a goodwill impairment is possible. The $5B goodwill balance is significant relative to the ~$3.8B book equity.

##### 1.4 Adjusted vs. GAAP Earnings

ADT reports several non-GAAP metrics. Key adjustments:

| Adjustment | FY2025 |
|-----------|--------|
| Stock-based compensation | ~$100–120M |
| Restructuring charges | ~$30–50M |
| Amortization of intangibles (acq.) | ~$300–350M |
| Loss/gain on divestitures | Variable |
| **Adj. EBITDA vs. GAAP Net Income difference** | ~$2.1B |

The gap between Adj. EBITDA ($2.68B) and GAAP Net Income (~$530–596M) is legitimate — primarily D&A of real assets and interest expense on real debt. Adjustments are reasonable and consistent with industry practice.

##### 1.5 Free Cash Flow — Preferred Metric

ADT reports two FCF metrics:
- **GAAP Operating Cash Flow - CapEx = ~$1.3–1.5B** (FY2025)
- **"Adj. FCF"** (company definition) = $863M FY2025 — this excludes subscriber system CapEx treated as subscriber acquisition cost

The divergence is important: management's "Adj. FCF" treats subscriber system CapEx as a growth investment (like SAC), while GAAP FCF counts it all. For valuation, using **GAAP FCF (~$1.3–1.5B)** is more conservative and appropriate.

##### 1.6 Earnings Quality Score

| Dimension | Score | Notes |
|-----------|-------|-------|
| Revenue recognition clarity | A | Ratable M&S; clean |
| Cash conversion (FCF/Net Income) | A+ | FCF >> net income; subscriber system assets create non-cash D&A |
| Accrual quality | B+ | Large intangible base; amortization policy key assumption |
| Balance sheet transparency | B | Complex debt structure; covenant details disclosed |
| Non-GAAP adjustments | B+ | Legitimate but large gap vs. GAAP; watch SBC trend |
| Related-party transactions | B | Google/State Farm are both large shareholders and business partners |

#### 2. Key Financial Metrics (FY2023–FY2025)

##### 2.1 Income Statement

| Metric | FY2023 | FY2024 | FY2025 |
|--------|--------|--------|--------|
| Revenue | $4,560M | $4,900M | $5,130M |
| Revenue Growth | — | +7.5% | +4.7% |
| Gross Profit | ~$3,200M | ~$3,450M | ~$3,690M |
| Gross Margin | ~70.2% | ~70.4% | ~71.9% |
| Adj. EBITDA | $2,300M | $2,500M | $2,680M |
| Adj. EBITDA Margin | 50.4% | 51.0% | 52.3% |
| GAAP Net Income | ~$274M | ~$500M | ~$596M |
| GAAP EPS (diluted) | ~$0.33 | ~$0.59 | ~$0.68 [S4] |
| Adj. EPS | ~$0.58 | ~$0.77 | ~$0.89 |

*FY2023 net income affected by commercial divestiture gain/loss recognition.*

##### 2.2 Balance Sheet

| Metric | FY2023 | FY2024 | FY2025 |
|--------|--------|--------|--------|
| Total Assets | ~$14.5B | ~$14.0B | ~$13.8B |
| Cash & Equivalents | ~$400M | ~$300M | ~$250M |
| Total Debt (gross) | ~$8.8B | ~$7.8B | ~$7.7B |
| Net Debt | ~$8.4B | ~$7.5B | ~$7.45B |
| Stockholders' Equity | ~$3.4B | ~$3.7B | ~$3.8B |
| Goodwill + Intangibles | ~$10.0B | ~$9.7B | ~$9.5B |

Tangible book value is **negative** — net tangible equity = equity – goodwill/intangibles = -$5.7B approximately. This is common for leveraged buyout legacies with large intangible bases.

##### 2.3 Cash Flow

| Metric | FY2023 | FY2024 | FY2025 |
|--------|--------|--------|--------|
| Operating Cash Flow | ~$1,700M | ~$1,800M | ~$1,900M |
| CapEx (total) | ~$800M | ~$700M | ~$570M |
| GAAP FCF | ~$900M | ~$1,100M | ~$1,330M |
| Adj. FCF (mgmt. def.) | ~$400M | ~$607M | ~$863M |
| Subscriber system CapEx | ~$500M | ~$490M | ~$465M |
| Non-subscriber CapEx | ~$300M | ~$210M | ~$105M |

FCF is growing strongly as CapEx normalizes post-restructuring. The total CapEx / Revenue ratio improved from ~17.5% (FY2023) to ~11% (FY2025).

##### 2.4 Leverage & Liquidity

| Metric | FY2023 | FY2024 | FY2025 |
|--------|--------|--------|--------|
| Net Debt | ~$8.4B | ~$7.5B | ~$7.45B |
| Adj. EBITDA | $2.30B | $2.50B | $2.68B |
| Net Leverage (Debt/EBITDA) | ~3.7x | ~3.0x | ~2.9x [S5] |
| Interest Coverage (EBITDA/Interest) | ~5.2x | ~6.1x | ~6.9x |
| Liquidity (cash + revolver) | ~$1.5B | ~$1.3B | ~$1.2B |

Leverage is declining toward the 2.5x long-term target. At 2.9x, ADT has manageable leverage for a stable recurring revenue business.

**Debt maturity profile:** Complex; multiple tranches with maturities staggered 2025–2032. No near-term maturity cliff. Fixed-rate majority, some floating exposure.

#### 3. Adversarial Research Sweep

*This section documents adversarial scrutiny — short reports, regulatory investigations, litigation, accounting controversies — relevant to the investment case.*

##### 3.1 Cybersecurity Incident (2023)

**Event:** ADT disclosed unauthorized access to customer account information via an 8-K in August 2023 [S6]. Attackers reportedly accessed customer email addresses, phone numbers, and postal addresses from a third-party business partner.

**Impact:** No financial systems or credit card data compromised per ADT. Class action litigation filed. ADT settled cybersecurity-related claims. Insurance covered a portion.

**Ongoing relevance:** Security companies suffering breaches face reputational risk — customers who trust ADT with their home security also trust ADT with their data. Repeat incidents would be particularly damaging. ADT increased cybersecurity spending post-incident.

##### 3.2 Sales Practice Controversy / Vivint Industry Spillover

**Event:** Industry peers (particularly Vivint/NRG Home) have faced CFPB actions, state AG investigations, and class-action suits over high-pressure door-to-door sales tactics (targeting elderly, misrepresenting contract terms) [S7].

**ADT status:** ADT has not been a primary target of such actions, but as the industry leader, reputational spillover is possible. ADT's dealer channel carries some risk of dealer misconduct.

**Mitigation:** ADT has compliance programs, dealer certification requirements, and a Dealer Management System to monitor practices.

##### 3.3 Apollo Private Equity Overhang

**Background:** Apollo Global Management took ADT private in 2018 via a leveraged buyout at ~$6.9B equity value (~$11.9B enterprise value). Apollo IPO'd ADT in 2018 and has been selling down its position over time [S5].

**July 2025 secondary:** Apollo sold 71M shares at $8.31 (~$590M proceeds) — significant but orderly [S8].

**Current Apollo stake:** ~13.4%. Additional distribution risk remains — Apollo exits create stock overhang. ADT's board has 3 Apollo designees despite the reduced stake.

**Investor concern:** Governance conflict — do Apollo board designees have ADT's best interest at heart, or are they managing Apollo's exit path? CEO Jim DeVries is viewed as management-aligned and has been buying shares.

##### 3.4 Subscriber Count Decline

**Concern:** Bears argue that ADT's subscriber count decline (6.4M→6.1M in FY2025) is a sign of structural erosion — more cancellations than new installations — that will eventually overwhelm ARPU growth.

**Counter:** Management argues the subscriber base "reset" is deliberate quality over quantity — they are shedding lower-quality, lower-ARPU customers (often acquired through aggressive dealer programs) while growing high-value subscribers. ARPU has risen from ~$50 (2021) to ~$59 (2025), supporting this thesis. Revenue still grew +4.7% FY2025.

**Watch:** The key test is FY2026 — management's "investment year" should show re-inflecting gross subscriber additions. If subscriber count continues declining >300K/year through 2026, the bear case gains credibility.

##### 3.5 Related Party Transactions

**Google / State Farm:** Both are simultaneously large shareholders and business partners. The Google commercial agreement (through 2030) involves ADT paying Google royalties for Nest hardware/software; Google receives equity stake in exchange. State Farm's referral partnership similarly creates shared economics with a major shareholder.

**Disclosure:** Transactions are disclosed in proxy and 10-K related-party notes. No evidence of self-dealing at the expense of minority shareholders, but governance complexity warrants monitoring.

##### 3.6 High Debt Legacy

ADT carries ~$7.7B gross debt — a legacy of the 2018 LBO. While leverage is improving (5x → 2.9x), the interest burden (~$390M/year, FY2025) is substantial. A refinancing event at higher rates or a covenant breach during a revenue downturn would be damaging.

**Current status:** No covenant violations. ADT has refinanced tranches opportunistically to extend maturities and reduce rates. Liquidity appears adequate.

#### 4. Management's Treatment of Key Metrics

| Management Claim | Our Assessment |
|-----------------|---------------|
| "Adj. FCF of $863M" | Conservative: uses narrow "subscriber system CapEx" exclusion. GAAP FCF was ~$1.3B — higher than guided. Both are valid lenses. |
| "RMR growth" as proxy for health | Valid — RMR is the right economic KPI. But declining subscriber count is a real concern if attrition accelerates. |
| Leverage at "2.9x" target approach | Accurate. Using total debt / adj. EBITDA per company convention. |
| "Investment year" FY2026 | Credible — they are cutting CapEx on low-quality installs and investing in ADT+/Origin AI. But flat revenue + continued subscriber decline would be a negative. |

#### Source Index

| # | Source | Detail |
|---|--------|--------|
| S1 | SEC 10-K / ASC 606 revenue note | Revenue recognition policy |
| S2 | SEC 10-K balance sheet notes | Subscriber system assets, goodwill |
| S3 | StockAnalysis / SEC | Balance sheet |
| S4 | Earnings release, StockAnalysis | EPS |
| S5 | DEF 14A / 10-K | Apollo ownership, insider activity |
| S6 | SEC 8-K Aug 2023 | Cybersecurity incident disclosure |
| S7 | Industry research / web search | Vivint/CFPB actions |
| S8 | Form 4 / SEC filings | Apollo secondary sale July 2025 |

## Deeper Financial Analysis

The fundamental tier ($1.00) adds 8 dimensions not included here:

- Revenue Breakdown — segment revenue, geographic mix, product-line margins
- Financial Trends — QoQ momentum, leading indicators, inflection points
- Balance Sheet — debt structure, dilution risk, working capital dynamics
- Capital Allocation — ROIC, buyback cadence, reinvestment efficiency
- Earnings Analysis — beats/misses, guidance vs actuals, transcript highlights
- Competitive Positioning — market share, pricing power, peer benchmarks
- Industry Context — TAM, sector tailwinds/headwinds, regulatory backdrop

**API endpoint:** GET /api/v1/research/ADT/fundamental

## Navigation

- Overview: /stocks/ADT
- Financials (this page): /stocks/ADT/financials
- Thesis: /stocks/ADT/thesis
- Investment Memo: /stocks/ADT/memo
- Coverage universe: /stocks