ADT Inc. Q3 2023 Earnings Call
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Good morning, Thank you for attending.
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Good morning. Thank you for attending todays AEP third quarter 2023 earnings call. My name is Jennifer and I'll be your moderator today, all lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end if you'd like to ask a question press star one on your <unk>.
Telephone keypad I would now like to pass the conference to our host Elizabeth Flanders with Investor Relations you May proceed.
Thanks, operator, and good morning, everyone. We appreciate you joining today's call to discuss Adt's third quarter 2023 results speaking on today's call will be Att's, Chairman, President and CEO, Jim Devries, and our EVP and CFO Ken <unk>. Following the prepared remarks, we will take analyst questions also joining us for Q&A are Don young.
P and Chief operating officer, and Wayne sourcing EVP and Chief business Officer earlier. This morning, we issued a press release and slide presentation of our financial results. These materials are available on our website at Investor Dot ADC Dot com before we begin I would like to remind everyone that as of the third quarter 2023, the commercial business is being reported as discontinued.
<unk> operations financials and metrics for current and historical periods discussed on this call will be for continuing operations, except for cash flows which include amounts related to the commercial business through the date of sale. Today's remarks also include forward looking statements that represent our beliefs or expectations about future events. These forward looking statements are subject to risks and.
Certainties that cause actual results to differ materially some of the factors that may cause differences are described in our SEC filings. We will also discuss non-GAAP financial measures on the call. The most directly comparable GAAP measures along with a reconciliation to those measures can be found in our earnings presentation on Adt's Investor relations website and with that on it.
Started to turn the call over to Jim. Thanks, Elizabeth Good morning, and thank you to everyone for joining us today I'll begin our third quarter call with an update on Adt's business portfolio share how we continue to sharpen our focus for the path ahead.
With our third quarter performance.
Ill, then turn our call over to Ken for poor our CFO for details on our third quarter financial results more on our commercial divestiture Adt's 2023 outlook 2023 is proving to be a pivotal year for ADT as we fine tune our portfolio and streamline our business our focus remains.
And on growth catalysts, reducing our overhead costs and strengthening our balance sheet going forward. Our team will focus on the future of our core cash flowing consumer businesses with emphasis on the optimal allocation of capital between growth debt reduction and returns.
To shareholders related to growth will remain primarily focused on organic but we'll continue to keep an eye on inorganic opportunities within our core smart home business, which have the potential to increase market share and efficiencies I'd like to briefly share for updates which.
Underscore our continued commitment to unlocking shareholder value first as planned we formally closed on Adt's commercial divestiture. Since we last spoke immediately unlocking a significant amount of value while positioning us to focus on the continued strength and opportunity and our.
Our core consumer business as previously announced the transaction successfully closed on October 2nd for a purchase price of just over $1.6 billion or 11, two times EBITDA.
Second we've taken decisive action to streamline the solar business, we're restructuring our solar footprint by aggressively rationalizing the infrastructure and overhead to improve profitability I'll share more on this in a moment.
Third we continue to focus on operating efficiencies through cost reduction and our business last quarter. We highlighted that we had identified $75 million of costs to be eliminated. This year. We have further identified an additional $10 million of savings for a total of 85 million.
Of course structurally reduced in our system, we foresee the run rate of these cost savings to be impactful to full year 2024, and the amount of over $100 million are significant wind at our backs and finally, we are reducing our debt using both.
Net proceeds of $1 $5 billion from our commercial transaction and an additional 300 million from cash on hand to end the year at unexpected net leverage ratio continuing the downward trend approaching three times. The successful execution of these strategies is enabled.
<unk> to be more nimble to the larger macroeconomic environment as it continues to unfold this year, the residential and small business security and smart home market remains resilient and continues to grow and redefine itself through new offerings to capitalize we're continuing to expand.
<unk> of our sales channels to include convenient E Commerce options. In addition to our exceptional in home consultation we have reevaluated and are innovating. The way. We offer is bundled products service and the related pricing alternatives, which we will continue to position us as the <unk>.
Preferred provider for even more consumers, who are seeking the peace of mind and convenience of ADT home security and while higher mortgage rates have caused many homeowners to delay relocating which historically would be a catalyst for new customers. We have actually benefited with continued high retention.
And our existing customer base and are focused on providing incremental security and smart home offerings to these customers. Our teams are working to deliver new technologies and product offerings in the coming months longer term, we feel confident that household formation driven by the continued wave of.
Millennials and Gen Z generations will support the need and desire for a safe and tech enabled living experience.
These consumers have grown up with the technology and smart living devices at their fingertips.
It is second nature for them to expect to live in a smart and secure halls. There are several catalysts supporting our objective of being the premier provider of Smart home solutions first we are delivering on our innovation and product offering with the development of our ADT plus platform and <unk>.
Smart monitoring, which we believe will emerge as unique differentiators our controlled launch of this product will begin later this quarter.
Helping our own platform lays the foundation for future innovation and incremental product and service offerings to our current and future customers. Additionally, our Google nest partnership is helping improve our product offering expanding our share of wallet and driving the increase in the number of smart home.
Devices per hole larger more connected home systems translate to higher device take rate and helped to increase our installation revenue, which remains approximately <unk> hundred dollars per home.
We also continue to see attachment rates on next door bells of approximately 50% and video take rates remain impressive and our integrated experience through ADT plus for new DIY customers, while equally the ADT plus app ratings and the iOS.
App store achieved an admirable four eight stars as a reminder, the record revenue payback in attrition measures, we're delivering have a strong correlation to the unlock provided by our upsell of these devices producing higher customer RP use and leading the greater and more.
Our frequent system usage and customer stickiness for many years ahead, our offer for a state farm homeowners continues to ramp and has just recently expanded the 13 states, which is ahead of our expected schedule, though still early to extrapolate we're seeing positive trends in very high.
Customer satisfaction, we've used the first few markets to test and learn different offers and by fall approaches and we continue to optimize opportunities with our state farm colleagues one of the early proof points, which is central to our thesis is adp's ability to upsell customers to a more.
Our robust system, we're pleased to see approximately two thirds of the customers transacting or purchasing additional hardware and services packages as mentioned earlier I would now like to circle back to the solar portfolio update we've been disappointed by our solar performance.
Which has not lived up to our expectations. In addition in navigating our operating challenges the solar industry itself continues to see pressure from higher interest rates, which is impacting consumer behavior and lender practices.
To address and navigate this changing solar landscape, we've taken action to streamline the business focusing on our top performing markets and rationalizing the infrastructure and overhead of the business Accordingly.
As part of this plan, we are taking immediate steps to restructure our solar footprint, we will be reducing from 38 branches in 20 states to 16 branches in nine states with the remaining branches representing approximately 70% of our current revenue and these remaining higher.
Performing geographies, we are expanding our product offering to include third party owned or leased systems.
This offering helps us to more effectively compete in these markets.
The launch of our lease product in mid October has been encouraging, albeit with a small sample size. We're seeing third party owned product share of over 50% in several states with some promising incrementally we expect the financial impact of these restructuring actions to be sizable and.
Sure. The overall financial results, we expect solar cash flows to show considerable improvement in the first half of 2024 and to turn positive in the second half, we just announced these changes internally as well as to our supply chain partners.
We remain attracted to the solar space, which we estimate growing at approximately 8% annually.
However, we plan to evaluate our performance in particular, the result of the lease offering and the success of the branch restructuring in Q1 of next year at that time, we'll be evaluating our path forward, including strategic alternatives available finally, I'd like to.
Turn to our third quarter financials, we continue to post very solid performance in our core business with year over year growth in adjusted free cash flow, including interest swaps of 20% for the quarter and over 50% year to date, while growing our ending recurring monthly revenue book.
By 3% total revenue was approximately $1 $2 billion with revenue in consumer and small business, increasing by 6% adjusted EBITDA was flat year over year with CSP up 6% in line with the revenue growth in this segment.
Our year to date adjusted EPS was <unk> 25.
More than doubled versus prior year, continuing our trend of positive adjusted net income each quarter since over a year ago. We ended the quarter with a record recurring monthly revenue or RMR balance of $350 million. Our revenue payback now stands at a record low of two <unk>.
Years down from 2.2 years, a year ago with gross attrition remaining at 12, 9% in summary, we continue to make progress in streamlining and focusing our business model and capital structure with our industry, leading scale brand recognition and premium custom.
Experience dovetailing with a strong balance sheet and strong cash flow, we continue to feel bullish about the future of ADT. All of this is driven by ADT dedicated and determined team of associates and partners, who work with great purpose to keep customers happy healthy and safe. So a sincere thank you to.
Everyone I will now turn the call over to our CFO, Ken <unk>. Thank you, Jim and thanks to everyone for joining our call today.
I'll first focus on our third quarter financial performance, then provide an update on the recent and exciting balance sheet improvements and finally provide an updated guidance range for full year 2023, as Jim mentioned, we closed on the commercial business divestiture on October 2nd and consequently have recast our historical financials to reflect this business unit is.
Discontinued operations in our third quarter as well as historically as we discuss the business, we will primarily be referring to the continuing operations of the company unless otherwise noted total company revenue was $1 2 billion for the quarter and recurring monthly revenue or RMR from our subscriber base was up 3% year over year to 350 million.
A record for CSB and an outcome of our strong customer retention and higher average pricing.
Within the growing RMR balance gross attrition remained at 12, 9% adjusted EBITDA was $583 million flat versus prior year with very solid margin and CSP of approximately 53% offsetting some of the operating losses from our solar business adjusted net income for the quarter was 69.
<unk> or <unk> <unk> per share.
We hit the inflection point on adjusted net income five quarters ago, and look forward to remaining in the black.
Adjusted free cash flow, including interest swaps was $171 million up 20% in the quarter versus prior year.
Year to date, the same measure is up 56% to $408 million on a growth and adjusted EBITDA improved sac efficiency and lower growth investment in gross adds the use of proceeds from the sale of our commercial business has accelerated our debt reduction with our net leverage ratio now at three three times, we were pleased to receive a court.
Credit rating upgrade by Moody's after a similar positive upgrade by S&P earlier this year as Jim mentioned, we anticipate the net leverage ratio continuing to decrease towards three times or below shifting to segment highlights for the quarter, our consumer and small business or CSB segment delivered total revenue of $1 2 billion in the third quarter up six <unk>.
Versus prior year CSB, adjusted EBITDA increased by about $34 million or 6% for the quarter driven by increased revenue aggressive cost fitness and eradication continued virtual service adoption and receipt of Google's success funds demand for Google nest product remained strong which has accelerated our sac efficiency.
And is driving a record revenue payback of two years within CSB and improvement from 2.2 years, just a year ago at our Investor day back in March of 2022, we shared our goal of achieving a revenue payback of two years or below by 2025, we're extremely proud to achieve this metric well ahead of that stated goal.
Which is helping to accelerate our cash flow results, even with the macro backdrop customers continue to choose larger more connected home systems, which translates to higher device take rates to help to increase our installation revenue per home.
Also seeing strong customer support for Adt's self setup launched earlier this year, which integrates our internally developed ADT plus app with Google's nest products. We continue to drive awareness of these products through our marketing campaigns, which is being partially funded by Google success funds. This year, we have received $40 million and are working to collectively.
Locked the next tranche of the success fund, we expect our Google partnership to accelerate even more with our integrated pro install solution, which is on track for a phased rollout to begin this quarter, we are making great progress on our cost efficiency efforts and are on track to achieve $85 million in cost reductions. This year, surpassing the 75 million Gall mentioned last quarter.
In addition to those cost reduction efforts, we continue to see benefits from the ADT virtual assistance program, which continues to drive high levels of customer satisfaction with roughly 50% of all service tickets currently being satisfied virtually.
We achieved a new milestone in August with over 100000 virtual jobs closed in the month and since the program launched in July of 2021, we have now completed more than $1 9 million service inquiries virtually.
To increase Rois and customer experience, we also rolled out the ADC Wi Fi fix app through this virtual assistance program. This tool allows our customer service agents to diagnose and address any Wi Fi issues impacting customers ADT equipment or other devices as Jim addressed our solar segment continues to face pressures and we are taking decisive.
Action to streamline the business in the third quarter ADT solar posted revenue of $58 million with an adjusted EBITDA loss of $41 million through the reduced geographic footprint and customer acquisition cost reduction very moving more than $80 million in annualized costs from our solar business in the quarter, we took a noncash goodwill charge of 88 million.
Associated with the solar segment, which eliminates the remaining goodwill balance this charge as a result of the continued challenges for our solar business and continued deterioration of macroeconomic and industry conditions and has been excluded from adjusted EBITDA turning to the balance sheet and cash flow as I briefly mentioned adjusted free cash flow, including interest swaps.
Which includes discontinued operations was $171 million up 20% in the quarter versus prior year, driven by increased TSP operating profitability and improvement in Sac efficiency from the record low revenue payback, we used proceeds from the commercial divesture to quickly and efficiently accelerate our debt reduction goals for this <unk>.
We are reiterating that we do not foresee a change in cash flow post the commercial divestiture given the dramatic reduction of our interest costs. As a reminder, our debt is now fully fixed until 2026 as a result of our timely interest rate swaps.
The primary benefit of these swaps are reported in the financing section of our cash flow statement. This is why we focus on free cash flow, including the swap impacts year to date, we redeemed approximately $1 5 billion of debt. These actions have reduced our current net leverage ratio to three three times on a trailing basis down from three nine times at the end of two.
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Furthermore, with two rating agency upgrades at our backs, we entered the financing markets to refinance and extend the maturity of our approximately $1 4 billion term loan b from a 2026 maturity to 2030.
Not only were we able to reduce our borrowing costs. We now have no significant debt maturities for several years.
Additionally, we have notified debtholders that we intend to pay down an additional $500 million of our April 2024 debt maturities by this year end, bringing our total 2023 debt reduction to approximately $2 billion with these.
<unk> balance sheet initiatives, we will benefit in 2024 from a reduction in interest expense by over $110 million. Our average cost of debt is approximately 5% until 2026 after using proceeds from our commercial divestiture to significantly pay down debt and line of sight to excess capital to deploy our capital.
<unk> priorities are as follows.
First funding growth and capex to yield attractive returns.
Second continuing to pay down additional debt and achieve an optimal net leverage ratio and finally exploring capital deployment alternatives, such as dividend policy and stock repurchase with the objective of maximizing shareholder returns I'll close with our outlook for the remainder of the year. Today, we are providing updated full year guidance to reflect the sale of our commercial business.
As well as updating for operating performance the timing of our related interest savings and certain accounting adjustments, specifically reallocated cost items that did not qualify for discontinued operations is expected to have a modest one time negative impact in 2023 on the revenue front due to solar underperformance, primarily offset by the strength in our core business.
As we now expect total revenue to range from $4 95 billion to $5. One 5 billion. This range implies a full year growth rate for <unk> of 7% at the midpoint, we expect an adjusted EBITDA range of $2 35 billion to $2 4 billion. This range implies a full year growth rate in <unk> at 8% at the midpoint, reflecting.
Our ongoing cost management and efficiency efforts, we are forecasting adjusted earnings per share of 40 to 45 for the year versus 19 for 2022. We also expect adjusted free cash flow of 525 million to $575 million and adjusted free cash flow, including the benefit of interest rate swaps is expected to.
$600 million to $650 million or growth of approximately 16% at the midpoint remember these cash flow measures. Unlike our revenue adjusted EBITDA and adjusted earnings per share guidance include cash from the commercial segment through the date of sale as we look forward given the acceleration of our balance sheet improvement and cash flow characteristics of our business we expect.
To be in a healthy position to both invest in the future and grow our business as well as have an incremental capital to allocate prudently to maximize shareholder value.
I'll now turn it back to Jim for some closing comments, thanks, Ken I'd like to close our opening remarks by reiterating Adp's investment proposition through our medium term target framework, including revenue growth in line with market growth with mix adjusted for our lines of businesses.
Adjusted EBITDA and adjusted free cash flow growth exceeding revenue growth internal rate of return for new CSP subscribers of 20% plus net leverage ratio less than three times and annual adjusted free cash flow with interest swaps of approximately $1.
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By the end of 2025, operator, please open up the call for questions. Thank you.
Thank you.
If you would like to ask a question. Please press star followed by one on your telephone keypad. If your question has been answered or you wish terminated yourself from the queue. Please press star followed by two as a reminder, if you are using a speakerphone. Please pick up your handset before asking a question.
Our first question comes from the line of Peter Christiansen with Citi.
Your line is now open.
Sure.
Thanks.
Good morning, Thanks for the question.
Tim I wanted to dig a little bit more into the into the solar business a bit here I mean, considering this.
It has likely been a lot of rationalization industrywide.
In an industry that we know is quite fragmented just curious.
Your thoughts on.
What could be adt's relative competitive position, even with this downsizing if things were to normalize I would imagine.
You and some of the larger players would be in a position of strength.
We were to see solar demand come back.
Just curious on your thoughts there.
Pete.
Thanks for the question absolutely.
I think that there's going to be some industry consolidation.
The.
The ability to withstand a tough market.
We think is.
Is improved by going slow now to go fast later.
As we said on the call we have a pretty major restructuring going from 38 or 39 branches down to 16, but not unimportant lay those 16 branches represent 70% of our of our revenue.
And.
We've been hurt like others because of interest rates and the loan product and now that we have the GPO with a lease product.
Watching the results closely Pete that's the partnership that we have with Sunpower. So so our plan is to execute the restructuring focus very closely on GPO sales and our ability to get the sales.
Turned down again, and we will review this as a team in Q1 and figure out the path from there.
Yes.
That makes a lot of says I just want to follow up with.
I guess the initial rationalization for the Central acquisition was cross sell certainly.
And on paper it certainly seems like the cross sell opportunity was was was it was interesting and certainly.
Opportunity just just curious I mean granted we'd been in a very tough market.
For this business just curious have you seen any evidence to the contrary that goes against that cross sell thesis.
It's a little bit difficult to tell because the product that we had.
This year in the back half of last year was was a loan product.
We bought a company we acquired a company that was either loan or cash interest rates are give or take double what they were at the time of acquisition. So it's been a little bit tough to test that thesis Pete.
Because of the product wasn't built for this kind of interest rate environment a loan product.
Just just doesn't pencil out.
And when Youre looking at payback periods of eight or nine or 10 years or longer.
Whether cross sell works or not is just super difficult to determine so we're going to get some better swings at the bat with the GPO product and get some insight into the deal thesis around cross sell.
Quickly mentioned, a second aspect of the deal thesis was our ability to leverage the ADT brand.
Essentially our customers Trust us for Smart home will they also trust us for smart energy and I'd say on that front, we're feeling pretty good, especially as consolidation occurs and.
The brand is of more value on a national basis.
Thanks, That's super helpful. Just one last housekeeping item and congrats again on the sale of the commercial business.
Certainly at an attractive multiple Ken I was just curious should we expect any type of impact to working capital with the removal of the commercial business.
Up or down just curious there. Thank you.
Nothing significant P. As we mentioned the interest savings excuse me.
We're receiving about $110 million of savings anticipated in 2024. So overall the other cash flow is that we released with the divestiture get equal to or more than offset with the interest savings. So within that on the working capital front pretty immaterial pizza, we look forward to the essentially the same cash flow that we had prior to the deal given the.
Interest savings that were will start once you have started on October 2nd.
Great Super helpful. Thank you, Jim and Ken. Thank you. Thanks Pete.
Thank you. Our next question comes from the line of George Tong with Goldman Sachs. Your line is now open.
Alright. Thanks, Good morning, you outlined initiatives to improve operating performance in solar in you talked a little bit more about when you expect these various actions may have an impact on solar revenue growth and also how ADP solar performance compares with the broader industry in other words, how much of the.
Growth performance is specific to the company and addressable by your various actions.
Yes.
Thanks for the question George It's Jim on the loan side of the.
Equation the market is very much experiencing the same thing we are.
For a comparison point for you.
CIT to close rate. This is when a sales rep has an opportunity at the kitchen table to interact with the customer when interest rates were give or take half of what they are today that sit to close conversion was something in the neighborhood of 20% now its a single digit and in <unk>.
Some markets low single digit where utility prices are low.
So so where we have some early positive signs with with our lease product.
It doesn't work in every single market, but the markets of which it's launched while we see some green shoots and as I mentioned, a moment ago, what we're what we're going to measure very very closely is our success.
In in selling the lease product cross selling the lease product.
And the execution of restructuring.
To keep a close eye on the business as you know, it's been well below our expectations and we'll measure reconvene and measure progress in January and make some decisions on the go forward path.
Okay.
Hey, George it's Ken I wanted to add one other thing that we had something in the prepared remarks, George I wanted to hit on as well as far as the timing that we talked about on the solar business being cash flow positive in the second half of this year that anticipates the of the wind down and we discussed in the branches that we are winding down pretty.
Pretty quickly here. So we will of course satisfy the existing backlog in those markets to make sure. The customer experience is strong but the wind down is is soon so.
So we are starting to turn the quarter in kind of first half of next year, and then looking forward to cash flow positivity.
Reducing our burn rate that we discussed.
On our prepared remarks earlier.
Yeah.
Got it that's helpful color.
And then.
You completed the commercial divestiture of about a month ago can you provide an update on how operationally the sale is affecting the remaining businesses, how intertwined with commercial with residential any stranded costs or additional functions that have to be stood up.
Yes, great question George.
The business the commercial business ran semi autonomous light and so there were no shared sales folks know shared.
And the.
The business is largely operated independently there are some shared services and.
And we're watching stranded costs in the shared services closely.
Right now there is a transition service agreement in place, where we are providing support to the buyer.
That last four in the main about 12 months. Some services are just a couple of months some last as long as 24 months.
And once that TSA is completed and we've met our obligations to provide support will be taking a hard look at our stranded cost and eliminating that.
The majority of it.
And George on the specifically on the on the TSA that that Jim mentioned, sorry to cut you off there Buddy.
The overlap again between commercial and the consumer business was very slight given it was kind of at its autonomous segments. So if you think about the stuff that we're providing service for over the timeframe that Jim mentioned and the fees that will charge the commercial business, which has now left the mothership they'll offset over the next couple of years and over time, we'll pull additional.
Cost out so as we kind of back up and look at you know what's the impact of that service cost in the service revenue, we see that as immaterial going forward as we kind of rightsize the business as we release more of the function and service to the commercial business.
Very helpful. Thank you.
Thank you. Our next question comes from the line of Toni Kaplan with Morgan Stanley. Your line is now open.
Thanks very much.
First I just wanted to ask a clarification on that solar restructuring.
And keeping the 16 branches and that was about 70% of revenue sorry, if I missed it but did you also give how much of that EBITDA loss in <unk> was associated with the remaining branches just wanted to get that for our modeling purposes.
Yeah.
Toni Good morning, it's Ken we did give is we've essentially.
Ah pulled out $80 million of annualized cost reduction from those branches and from corporate So if you think about kind of the existing run rate results. You've seen we have kind of line of sight to $80 million of annualized run rate and pulling that out pretty quickly. So that's why we kind of connecting the dots with pay first half we turned the corner so I turned the corner.
And then second half starts turning to free cash flow positive for solar but $80 million of the strict cost reduction.
We see related to the wind down in those branches.
Okay.
Great and then.
Youre talking about 7% growth at the midpoint for CSP this year could.
Could you just talk about how you're thinking about 'twenty for sustainability of that sort of level or if you know that.
Macro is sort of impacting that or.
Maybe extra focus on it because maybe you won't have to deal with solar as much the issues. There. So just wondering.
That sustainability of that 7% top line growth for the CSP part thanks.
Sure Toni it's Ken I'll give this one a shot as well. So again, we tried to give the color on the guidance for CSB given the you know the actions in solar. So that's why we gave the midpoint of the 7% that we havent, giving guide for.
For 2020 for it we absolutely will on our next call, but we did give an IRA in our prepared remarks and the earnings deck on page six was overall medium term guidance kind of two to three years. So we see revenue in line with market growth, we see the market growth for the CSP business or the consumer business around mid to.
6% growth so that kind of gives you a feel of how we're thinking about revenue growth was pretty consistent with our 2023 guide.
And we see that for <unk>.
Pinning the operation activities that we've talked about but also activating the catalyst that Jim talked about in his prepared remarks related to growth in the CSD business, specifically, whether it's activating our ADT plus platform and attaching innovation to that whether it's activating more and more state farm in and expanding into more and more states there.
And we have another other a number of other initiatives as well to activate the growth catalyst. So if we're at kind of 7% today that gives you a feel of how we're thinking about ourselves specifically versus the market.
Thank you.
Sure Tony.
Thank you.
As a reminder, it is.
Star one to ask a question.
Our next question comes from the line of Ashish <unk> with RBC capital markets. Your line is now open.
Thanks for taking my question.
Don't mind I, just wanted to drill down further on the silhouette itself and.
Instead of me to think about how much is the impact to free cash flow from the solar headwind. This year. So we can think about what the free cash flow would have been excluding the negative impact of solar.
Yeah, I can give you a feel ashish good morning, yeah. So far we've in EBITDA, we're just under $90 million negative for the first nine months of this year for the solar business. So we don't disclose the exact solar free cash flow, given where our entanglement there, but assume that EBITDA is in the ballpark.
Free cash flow so.
That's why I tried to connect the dots on the $80 million cost out that relates to the solar restructuring put it in the context of you know we're down $89 million of EBITDA nine months in taken out $80 million, but a key point that Jim mentioned in his script.
Was the we've left the higher performing markets. So not only do we take out the cost, but the dynamics of the market that remain of 16 branches in the eight or nine states. Those are the higher performing branches. So I think that gives you a bit of color Ashish to connect the dots on your model.
One thing to add Ashish is.
Just for context.
The lost cash losses in.
In solar this year have have obviously been very significant the CSB business is performing very well from a cash perspective.
Now that will have very significantly less interest expense that is another tailwind for us next year and part of our bridge for 2024.
Which makes the $1 billion in 2025, much more realistic is putting a tourniquet simply putting a turn a kit on the cash losses in solar.
Our cash losses this year in solar not been so significant.
It just would have been an absolutely exceptional cash year for us and.
Much closer bridge to getting to that $1 billion in 2025.
Yeah, No. That's very helpful color actually that's what I was trying to get to is so that we better understand the normalized free cash flow in the business when we exclude <unk>.
These issues.
You've done around the business next year think about strategic Optionality.
Maybe just as a follow up wanted to.
Focus on.
The.
Deciding to state farm partnership and the success that you're having there.
Things are trending ahead of ahead of your expectations and and the success that we're having also in selling additional hardware and services I was just wondering how should we think about.
Given the success that you've had so far how are you thinking about that going forward.
But particularly from the timeline perspective, and rolling it out across the country.
Thank you Ashish So state farm all the intangibles are positive everything from shared vision and integrated insurance product.
Very customer focused culture as I mentioned this on our on our last call. The chemistry between project teams is outstanding we feel great about the partnership.
There's a great deal of regulatory work to do a great deal has been accomplished.
We're now in.
13 States I think the preliminary plan for next year is in the range of 15 to 20 more states in 2024, I think that will put us in a market overlap with 75% of the state farm.
Policies in force were up to about 3600 systems sold now and as I think Ken included in the prepared remarks.
Not unimportant way about two thirds of the time that we install one of these systems, we're able to upsell to a broader security and smart home offering. So the economics are are living into what we had hoped they would.
At the at the time the partnership was created so net net feel good about it.
Just to get a little more traction on subscriber adds but they're a terrific partner.
Yeah.
That's great color and congrats on solid results.
Thanks Ashish.
Thank you there are no questions waiting at this time, so I will pass the call back to the management team for any closing remarks.
Thank you Jennifer and thanks, everyone for taking time to join us today.
As you heard this morning, our CSP business is doing well are we back to the activated plans to address our solar segment and we'll be exiting the year with a much improved balance sheet. So while we're eager for it to close out the year strong and for 2020, Florida begin we appreciate everybody's time today and.
Have a great day.
That concludes.
Today and have a great team.