Q1 2024 ADT Inc Earnings Call

Okay.

Victoria: Good morning. Thank you for attending the ADT First Quarter 2024 Earnings Conference Call. My name is Victoria, 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, please press star followed by one on your telephone keypad. I would now like to pass the conference over to your host, Elizabeth Landers, Senior Director of Investor Relations. Thank you. You may proceed, Elizabeth.

Good morning. Thank you for attending the <unk> first quarter 2024 earnings Conference call. My name is Victoria 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. Please press star followed by <unk>.

Victoria: One on your telephone keypad I would now like to pass the conference over to your host Elizabeth Landers Senior director of Investor Relations. Thank you you May proceed Elizabeth.

Elizabeth Landers: Thanks, Operator, and good morning, everyone. We appreciate you joining today's call to discuss ADT's first quarter 2024 results. Speaking on today's call will be ADT's Chairman, President, and CEO, Jim DeVries, and our Chief Financial Officer, Jeff Likosar. Following the prepared remarks, we'll take analyst questions. Earlier this morning, we issued a press release and a slide presentation of our financial results. These materials are available on our website at investor.adt.com. Before we begin, I'd like to remind everyone that beginning in the third quarter of 2023, the commercial business will be reported as a discontinued operation.

Elizabeth Landers: Thanks, operator, and good morning, everyone. We appreciate you joining today's call to discuss Adt's first quarter 2024 results speaking on today's call be Att's, Chairman, President and CEO, Jim Devries, and our Chief Financial Officer, Jeff <unk>. Following the prepared remarks, we will take analyst.

Elizabeth Landers: 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 ADT Dot com before we begin I'd like to remind everyone that beginning in the third quarter of 2023, the commercial business is reported as discontinued operations finance.

Elizabeth Landers: 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 uncertainties that could cause actual results to differ materially. Some of the factors that may cause these differences are described in our SEC filings.

Elizabeth Landers: <unk> 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.

Elizabeth Landers: Today's remarks also include forward looking statements that represent our beliefs or expectations about future events.

Elizabeth Landers: These forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially.

Elizabeth Landers: Some of the factors that may cause differences are described in our SEC filings. We 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 the ADT Investor Relations website, and with that I'm excited to turn the call over to Jim Good morning.

Elizabeth Landers: We also discussed non-GAAP financial measures on the call. The most directly comparable GAAP measures, along with the reconciliation to those measures, can be found in our earnings presentation on the ADT Investor Relations website. And with that, I'm excited to turn the call over to Jim.

James David DeVries: Good morning, and thank you to everyone for joining us today to discuss ADT's first quarter results released this morning. ADT had a very good start to the year financially with strong CSB performance driving top-line growth, improved segment EBITDA, and positive adjusted free cash flow, all of which Jeff will describe shortly. First, I want to share a few comments about why I remain excited about the opportunities that lie ahead, the positioning of our company, and what we believe to be a compelling investment thesis.

Jim: And thank you to everyone for joining us today to discuss Adt's first quarter results released this morning, ADT had a very good start to the year financially with strong CSP performance driving topline growth improve segment EBITDA and positive adjusted free cash flow all of which <unk>.

James David DeVries: Jeff will describe shortly first I want to share a few comments about why I remain excited about the opportunities that lie ahead, the positioning of our company and what we believe to be a compelling investment thesis our streamlined business model focusing on our consumer oriented core secured.

James David DeVries: Our streamlined business model focusing on our consumer-oriented core security and smart home business serves a large and growing market, and ADT is the clear industry leader with a unique set of assets, including our trusted brand and national footprint and scale. We have a flywheel-like model where we are increasingly able to use the stable and predictable cash flows from our RMR base to service and reduce our debt obligations and return cash to our shareholders, while also continuing to invest in growing the RMR base.

James David DeVries: And smart home business serves a large and growing market and ADT is the clear industry leader with a unique set of assets, including our trusted brand our national footprint and scale, we have a flywheel like model, where we are increasingly able to use the stable and predictable cash flows from.

James David DeVries: Our RMR base to service and reduce our debt obligations and return cash to our shareholders. While also continuing to invest in growing the RMR base that growth is further enhanced by our extraordinary combination of concierge life professionals Blue chip partners and expanded.

James David DeVries: That growth is further enhanced by our extraordinary combination of concierge-like professionals, blue-chip partners, and expanded capabilities to penetrate even more customer segments and U.S. households. And we've never felt more confident about our overall capital structure and the related flexibility to deliver on our commitments to all of our stakeholders. During 2024, our focus remains on methodically rolling out our new ecosystem of customer offerings and experiences, as well as related back office infrastructure.

James David DeVries: Capabilities to further penetrate even more customer segments and U S households, and we've never felt more confident about our overall capital structure and the related flexibility to deliver on our commitments for all of our stakeholders. During 2024, our focus remains.

James David DeVries: Methodically rolling out our new ecosystem of customer offerings and experiences.

James David DeVries: As well as related back office infrastructure as you know, we launched our new ADT plus platform for our professionally installed customers in select markets last December following the rollout of our ADT plots app to self setup customers earlier last year, we are expanding.

James David DeVries: As you know, we launched our new ADT Plus platform for professionally installed customers in select markets last December, following the rollout of our ADT Plus app to self-setup customers earlier last year. We are expanding to more geographies and customers throughout 2024 and are confident in the differentiated capabilities our new platform will enable in future years, especially as we develop additional use cases tailored to our customers' unique needs. We plan to make the first of these available on our platform later this year.

James David DeVries: To more geographies and customers throughout 2024 and are confident in the differentiated capabilities, our new platform will enable in future years, especially as we develop additional use cases tailored to our customers' unique needs.

James David DeVries: We will plan to make the first of these available on our platform later this year.

James David DeVries: ADT's new platform continues to leverage our Google Nest Partnership, which has already enabled us to expand our offerings, particularly in the fast-growing area of camera and video analytics. Our State Farm Partnership also remains a catalyst for the business and illustrates our continued evolution and innovation. We continue to see month-on-month growth in our existing 13 states and remain on track to begin new pilots in four more states in the coming months. We remain optimistic about the growth opportunity with State Farm to drive significant benefits to our combined customers' need for proactive risk detection and prevention.

James David DeVries: Adt's new platform continues to leverage our Google nest partnership, which has already enabled us to expand our offerings, particularly around the fast growing area of camera and video analytics. Our state farm partnership also remains a catalyst for the business and illustrates our continued.

James David DeVries: <unk> and innovation, we continue to see month on month growth in our existing 13 states and remain on track to begin new pilots and four more states in the coming months, we remain optimistic in the growth opportunity with state farm to drive significant benefit to our combined customers.

James David DeVries: Need for a proactive risk detection and prevention, we will further unlock the power of our ecosystem with the full scaling of our ADT plus platform, new hardware and refreshed it infrastructure, including advancement on our digital journey to provide more personalized offerings we.

James David DeVries: We will further unlock the power of our ecosystem with the full scaling of our ADT Plus platform, new hardware, and refreshed IT infrastructure, including advancements on our digital journey to provide more personalized offerings with greater efficiency while providing best-in-class service. In that vein, we have broadened our strong Google relationship beyond Nest hardware with a sharp focus on efficiency and customer experience, utilizing Google's AI technology platform to explore several opportunities across our business, with early efforts focused on call center operations.

James David DeVries: With greater efficiency, while providing best in class service.

James David DeVries: In that vein, we have broadened our strong Google relationship beyond nest hardware with a sharp focus on efficiency and customer experience utilizing google's AI technology platform to explore several opportunities across our business with early efforts focused on cost.

James David DeVries: Center operations, our virtual assistance program has already been a key driver of our efficiency, allowing us to better service, our subscriber base, while simultaneously lowering our costs by utilizing technology and video in place of more traditional in person service visits.

James David DeVries: Our virtual assistance program has already been a key driver of efficiency, allowing us to better serve our subscriber base while simultaneously lowering our costs by utilizing technology and video in place of more traditional in-person service visits. Customers increasingly value the convenience and speed of our virtual capabilities, which also contributes to reducing our carbon footprint. While still early in our implementation, we anticipate significant call deflection using AI-led efficiencies in customer care.

James David DeVries: Customers increasingly value the convenience and speed of our virtual capabilities, which also contributes to reducing our carbon footprint, while still early in our implementation, we anticipate significant call deflection, using AI lab efficiencies and customer care.

James David DeVries: And we're looking more broadly across the organization at ways to leverage AI in areas such as churn propensity modeling to help us improve customer retention. Obviously, there is a lot more to come in this area. As we announced in January, we've made the decision to exit our residential solar operation, which is progressing as planned. We've ceased all sales and marketing activities. We're closing branches, selling inventory, and installing what remains of our pipeline. The headcount in solar continues to decline, and we expect to discontinue substantially all field operations as planned by the end of the second quarter.

James David DeVries: And we're looking more broadly across the organization at ways to leverage AI in areas, such as churn propensity modeling to help us improve customer retention.

James David DeVries: There is a lot more to come in this area as we announced in January we've made the decision to exit our residential solar operations, which is progressing as planned we've ceased all sales and marketing activities, where our closing branches selling inventory and install.

James David DeVries: Knowing what remains of our pipeline the head count in solar continues to decline and we expect to discontinue substantially all field operations as planned by the end of the second quarter.

James David DeVries: Finally, I have just a few brief comments regarding the secondary offering executed in March. Overall, we were pleased with the completion of Apollo's offering of approximately 75 million shares of common stock, taking their ownership to below 50%. We view this as a positive for liquidity, and over a period of time, we expect the larger public float to attract even more high-quality investors to ADT. We concurrently repurchased 15 million shares of common stock using $93 million of our $350 million share repurchase authorization to further bolster our value proposition.

James David DeVries: Finally, I have just a few brief comments regarding the secondary offering executed in March overall, we were pleased with the completion of apollo's offering of approximately 75 million shares of common stock taking their ownership to below 50%.

James David DeVries: We view this as a positive for our liquidity and over a period of time, we expect a larger public float to attract even more high quality investors to ADT, we concurrently repurchased 15 million shares of common stock using $93 million of our 350 million.

James David DeVries: Our share repurchase authorization to further bolster our value proposition in closing Adt's core focus remains on delivering safe smart and sustainable solutions to our customers with an emphasis on innovative offerings unrivaled.

James David DeVries: In closing, ADT's core focus remains on delivering safe, smart, and sustainable solutions to our customers with an emphasis on innovative offerings, unrivaled safety, and a premium service experience. Collectively, we expect these efforts will improve our efficiency and customer experience while also enabling better and faster insight to meet our customers' needs. The immediate priority for our team is to deliver on our commitments as we remain confident in our plan for 2024.

James David DeVries: Safety and a premium service experience collectively we expect these efforts will improve our efficiency and customer experience, while also enabling better and faster insight to meet our customers' needs. The immediate priority for our team is to deliver on our commitment.

James David DeVries: As we remain confident in our plan for 2024, I'd now like to turn the call over to Jeff Lucas are Jeff has been serving as our interim CFO since December and he'll now officially returned to the CFO seat, Jeff has been a great partner to me and as many.

James David DeVries: I'd now like to turn the call over to Jeff Likosar. Jeff has been a great partner to me, and as many of you on the call this morning know, he's a tremendous executive leader for ADT. I'm thrilled to be working with him in this capacity again. With that, I'll turn the call over to Jeff.

Jeffrey Likosar: Have you on the call. This morning, no. He's a tremendous executive leader for ADT I'm thrilled to be working with Jeff and this capacity again with that I'll turn the call over to Jeff. Thanks, Jim for the kind words and thank you everyone for joining our call today I will take the next few minutes to share some additional comments on our first quarter.

Jeffrey Likosar: Thanks, Jim, for the kind words, and thank you, everyone, for joining our call today. I'll take the next few minutes to share some additional comments on our first quarter financial performance and our outlook for the rest of 2024. A highlight is that total company first quarter adjusted net income was $151 million, or $0.16 per share, well above last year's $0.11. Additionally, we delivered very strong adjusted free cash flow, including interest rate swaps, which was almost $100 million ahead of last year.

Jeffrey Likosar: Performance and our outlook for the rest of 2024.

Jeffrey Likosar: Highlight is that total company first quarter adjusted net income was $151 million or <unk> 16 per share well above last year's 11. Additionally.

Jeffrey Likosar: Additionally, we delivered very strong adjusted free cash flow, including interest rate swaps, which was almost $100 million ahead of last year as a result of our decision to exit the solar business I'll focus mainly on our CSB segment, where revenue of approximately $1.2 billion grew 5% monitoring and services revenue was up 3% driven.

Jeffrey Likosar: As a result of our decision to exit the solar business, I'll focus mainly on our CSV segment, where revenue of approximately $1.2 billion grew 5%. Monitoring and services revenue was up 3%, driven by our $353 million RMR balance, which was also 3% higher year over year. This level was generally consistent with our approximately flat SAC.

Jeffrey Likosar: By our $353 million RMR balance, which was also 3% higher year over year, we generated gross customer additions of 187011 point $4 million of new RMR additions. This level was generally consistent with our approximately flat Sac importantly, we will remain disciplined in subscriber acquisitions.

Jeffrey Likosar: Importantly, we will remain disciplined in subscriber acquisition spending, especially in a challenging macro environment, including fewer relocations. Installation revenue increased by 22 percent, driven by higher deferred revenue amortization and higher outright sales. As we've described previously, we expect continued outright sales growth as we more often transfer equipment ownership to our customers. Installation revenue per unit remains strong at nearly $1,400.

Jeffrey Likosar: Spending, especially in a challenging macro environment, including fewer relocations installation revenue increased by 22% driven by higher deferred revenue amortization and higher outright sales as we've described previously we expect continued outright sales growth as we more often transfer equipment ownership to our customers installation revenue per <unk>.

Jeffrey Likosar: Unit remained strong at nearly $1400 the trend towards larger system sizes contributed to our efficient revenue payback of 2.1 years. Additionally, larger systems are correlated with strong customer retention supporting our 13.1% attrition rate as a reminder, our attrition metric reflects the trailing 12 months rate of RMR cancer.

Jeffrey Likosar: The trend towards larger system sizes contributed to our efficient revenue payback of 2.1 years. Additionally, larger systems are correlated with strong customer retention, supporting our 13.1% attrition rate. As a reminder, our attrition metric reflects the trailing 12-month rate of RMR cancellations on professionally installed systems.

Jeffrey Likosar: Relations on professionally installed systems. It does not include self setup customers or the attrition offset of customers relocating their service CSB adjusted EBITDA was $638 million in the quarter and 8% increase versus last year, our margin rate increased by approximately 200 basis points as we remain focused on cost and <unk>.

Jeffrey Likosar: It does not include self-setup customers or the attrition offset of customers relocating. CSB adjusted EBITDA was $638 million in the quarter, an 8% increase versus last year. Our margin rate increased by approximately 200 basis points as we remain focused on cost and efficiency improvements. We continue to fund the investments in the ecosystem and infrastructure priorities Jim described.

Jeffrey Likosar: Wyszynski improvements, we continue to fund the investments in the ecosystem and infrastructure priorities. Jim described we also benefited modestly from the timing of advertising spending some of which we deferred to coincide with our new platform rollout. This ESB profitability was a significant contributor to the solid cash flow growth I mentioned earlier adjusted free cash flow.

Jeffrey Likosar: We also benefited modestly from the timing of advertising spending, some of which we deferred to coincide with our new platform rollout. This CSB profitability was a significant contributor to the solid cash flow growth I mentioned earlier. Adjusted free cash flow, including interest rate swaps, of $111 million compares to $16 million in the prior year quarter.

Jeffrey Likosar: Including interest rate swaps of $111 million compares to $16 million in the prior year quarter lower interest on reduce debt payroll items and some favorable timing versus our plans. All contributed to this performance. These benefits were partially offset by the sale of our commercial business, which contributed positive cash flow last year during April.

Jeffrey Likosar: Lower interest on reduced debt, payroll items, and some favorable timing versus our plans all contributed to this performance. However, these benefits were partially offset by the sale of our commercial business, which contributed positive cash flow last year. During April, we repaid the remaining $100 million due on our 2024 notes, leaving us with no significant debt maturities until 2026. We also completed a repricing of our $1.4 billion term loan B, reducing the associated borrowing costs by 25 basis points.

Jeffrey Likosar: We repaid the remaining $100 million due on our 2024 notes, leaving us with no significant debt maturities until 2026, we also completed a repricing of our $1 $4 billion term loan b, reducing the associated borrowing costs by 25 basis points. Our net debt remains at 3.2 times adjusted.

Jeffrey Likosar: Our net debt remains at 3.2 times adjusted EBITDA. Following the $93 million share repurchase Jim described, we have $257 million in remaining authorization. Due to interest rate swaps, substantially all of our debt is fixed at a weighted average rate of 4.5%.

Jeffrey Likosar: EBITDA following the $93 million share repurchase Jim described we have $257 million in remaining authorization due to interest rate swaps substantially all our debt is fixed at a weighted average rate of four 5%. We are very confident in our overall capital structure cash generation capability liquidity and resulting fee.

Jeffrey Likosar: We are very confident in our overall capital structure, cash generation capability, liquidity, and resulting flexibility in capital allocation. As Jim mentioned, our solar wind-down is progressing as planned, with all sales and new installation activity having ceased. Solar segment revenue was $20 million in the quarter, with an adjusted EBITDA loss of $24 million. We expect total exit costs, which are not included in our adjusted EBITDA or cash metrics, to be within the ranges we provided in February. We incurred $75 million of these charges and $11 million of cash expenditures in the first quarter.

Jeffrey Likosar: Flexibility in capital allocation as Jim mentioned, our solar wind down is progressing as planned with all sales and new installation activity, having ceased solar segment revenue was $20 million in the quarter with an adjusted EBITDA loss of $24 million. We expect total exit costs, which are not included in our adjusted EBITDA or cash metrics to be within.

Jeffrey Likosar: The ranges we provided in February.

Jeffrey Likosar: We incurred $75 million of these charges and $11 million of cash expenditures in the first quarter as we look to the rest of 2024, we are affirming the guidance we shared in February which we anchored on strong cash flow growth as a reminder, due to our solar exit revenue and adjusted EBITDA guidance for the full year is for our CSB segment as mentioned earlier.

Jeffrey Likosar: As we look to the rest of 2024, we are affirming the guidance we shared in February, which we anchored on strong cash flow growth. As a reminder, due to our solar exit, revenue and adjusted EBITDA guidance for the full year are for our CSB segment. As mentioned earlier, we benefited in the first quarter from some timing items, and we expect the second quarter to reflect some offsets. In general, we expect our guided metrics to be relatively flat in the second quarter compared to the first quarter. A noteworthy exception is that we expect approximately $70 million less cash interest in the second quarter versus the first.

Jeffrey Likosar: <unk>, we benefited in the first quarter from some timing items and expect in the second quarter to reflect some offsets in general we expect our guided metrics to be relatively flat in the second quarter compared to the first quarter. A noteworthy exception is that we expect approximately $70 million lower cash interest in the second quarter versus the first overall, we are very pleased with our start.

Jeffrey Likosar: Overall, we are very pleased with our start to the year and our progress towards our 2024 and longer-term objectives. Before turning to questions, I'd like to thank our customers, our employees, our dealers, suppliers, partners, communities, and our investors. Our successes would not be possible without your contributions and support. Thank you, everyone, for joining the call today. Operator, please open the line to questions.

Speaker Change: For the year and our progress towards our 2024 and longer term objectives before turning to questions I'd like to thank our customers our employees, our dealers suppliers partners communities and our investors our successes would not be possible without your contributions and support. Thank you everyone for joining the call today operator, please open the line to questions.

Jeffrey Likosar: Sure.

Speaker Change: We'll now begin the question and answer session, if you'd like to ask a question. Please press star followed by one on your telephone keypad. If for any reason you would like to address that question. Please press star followed by Q.

Operator: We will now begin the question and answer session. If you would like to ask a question, please press star followed by 1 on your telephone keypad. If for any reason you would like to remove that question, please press star followed by 2. Again, to ask a question, press star 1. As a reminder, if you are using a speakerphone, please remember to pick up your headset before asking a question. We will pause here briefly as questions are registered. Our first question comes from the line of George Tong with Goldman Sachs. Your line is now open. All right.

Operator: To ask a question press star one.

Operator: As a reminder, if you are using a speaker phone. Please remember to pick up your headset handset before asking a question. We a pause here briefly ask questions are registered.

Operator: Our first question comes from the line of George Tong with Goldman Sachs.

Keen Fai Tong: Your line is now open.

Keen Fai Tong: Thanks, Good morning.

Keen Fai Tong: You're continuing to rollout the ADT plus platform, which is great to see can you talk about what kind of financial benefits you anticipate with this rollout is it more going to be who is it going to be unit as it can be retention some.

Keen Fai Tong: Thanks. Good morning.

Keen Fai Tong: Idea around financial impact and traction that you've seen so far with the rollout.

James David DeVries: You're continuing to roll out the ADT Plus platform, which is great to see. Can you talk about what kind of financial benefits you anticipate with this rollout? Is it more going to be ARPU? Is it going to be unit? Is it going to be retention? Is there some idea around financial impact and traction that you've seen so far with the rollout?

Speaker Change: Thanks, George for the for the question, where we're Super excited about ADT plus the initial rollout for ADT plus is really at parity with what we've been installing on both the hardware and software side to date.

James David DeVries: What we're most excited about with the platform is the features.

James David DeVries: Thanks, George, for the question. We're super excited about ADT+. The initial rollout for ADT plus is really at parity with what we've been installing on both the hardware and software side to date. What we're most excited about with the platform are the features that will be available in subsequent rollouts. Any of the upside that we have in 2024 is fairly limited. We're rolled out in a couple of markets now. We're going to be expanding nationally in the coming months, but the lift for us, the upside for us that we see in the ADT plus platform, will really be evident in 2025.

James David DeVries: That will be available in subsequent rollouts.

James David DeVries: Any of the upside that we have in 'twenty 'twenty four is fairly limited.

James David DeVries: Where were rolled out in a couple of markets now we're going to be expanding nationally in the coming months.

James David DeVries: But the lift for us the upside for us that we see in the ADT plus platform is really most evident in 2025.

James David DeVries: George It's Jeff and I'd add to your question, it's somewhat all of the above.

James David DeVries: The rollout of the platform will coincide with some of the other changes that we've described with respect to offer structure.

Jeffrey Likosar: George, it's Jeff, and I'd add to your question that it's somewhat all of the above. The rollout of the platform will coincide with some of the other changes that we've described with respect to offer structure, different ways that customers may choose to purchase, more of a shift toward more efficient acquisition channels. So, over time, we would expect it to make our offerings more attractive to customers, that would lead to more customers, better economics, lower SAC, and more efficiency serving those customers. But to Jim's point, I would think of it for now as the foundation that enables all of those things.

James David DeVries: Different ways that customers may choose to purchase more of a shift towards towards a more efficient acquisition channels. So so over time, we would expect it to make our offerings more attractive to customers that would lead to more customers better economics, lower sac more efficiency, serving those customers, but to Jim's point I would think of it for now.

Jeffrey Likosar: Ours is the foundation that enables all of those things.

Speaker Change: Got it that's helpful context, and then with the state farm partnership we are continuing to push forward with.

Jeffrey Likosar: Penetration of the 13 states and additional Rollouts in four states can you provide some additional details on Sterling progress with the states that you are currently and how much scale that partnership is in terms of revenue generation and what the client feedback has been like.

James David DeVries: Got it. That's helpful context. And then with the State Farm Partnership, you're continuing to push forward with penetration of the 13 states and additional rollouts in four states. Can you provide some additional details on selling progress with the states that you're currently in, how much scale that partnership is in terms of revenue generation, and client feedback? Yes, absolutely.

Speaker Change: Yes, absolutely. So the launches you know George was March of 'twenty three we.

James David DeVries: We did 6000 sales in 2023 in Q1 of 'twenty four we're just under 5000 sales.

James David DeVries: Yes, absolutely. So the launch, as you know, George, was March 23. We did 6,000 sales in 2023. In Q1 of 24, we're just under 5,000 sales. Customer satisfaction continues to be incredibly high. I think for the quarter, we were at 96% customer satisfaction. Every month continues to be better than the month prior.

James David DeVries: Customer satisfaction continues to be incredibly high I think for the quarter, we were at 96% customer SaaS.

James David DeVries: Every month continues to be better than the month prior two.

James David DeVries: Two thirds of our installs include an upsell, which is pretty consistent with with our expectations.

Speaker Change: And then.

Speaker Change: And in terms of upcoming things on the radar screen, we're going to be testing.

James David DeVries: Two-thirds of our installs include an upsell, which is pretty consistent with our expectations. And then, in terms of upcoming things on the radar screen, we're going to be testing a DIY offering in two states, and that will be in June. And then we're exploring a water detection-led pilot, essentially marketed to State Farm customers who have had water claims in the past. So net companies continue to be aligned on the vision. Things are going well.

James David DeVries: D I Y offering in two states and that will be in June and then we're exploring all water detection led pilot SL.

James David DeVries: Essentially marketed to state farm customers, who have had water claims in the past so.

James David DeVries: Companies continue to be aligned on the vision.

James David DeVries: Things are going well, we would always like to see things go a little bit faster, but we liked our results in Q1, they were consistent with our with our internal budget and we'll look forward to further penetration in the 13 existing states and.

James David DeVries: We would always like to see things go a little bit faster, but we liked our results in Q1. They were consistent with our internal budget, and we'll look forward to further penetration in the 13 existing states and watching our DIY pilot closely at the end of the quarter.

James David DeVries: And watching our DIY pilot closely at the end of the quarter.

Ashish Sabadra: Thank you for your question. The next question comes from the line of Ashish Sabappa with RBC. Your line is now open.

Speaker Change: Very helpful. Thank you.

Ashish Sabadra: Thank you for your question.

Ashish Sabadra: The next question comes from the line of Ashish tobacco with RBC. Your line is now open.

David Page: Hi, good morning. This is David Page on behalf of Ashish.

David Page: Yeah.

David Page: Hi, Good morning. This is David page on Earth.

David Page: Sheesh.

Jeffrey Likosar: First, Jeff, congratulations on the official CFO title role. It's great to see. It's fun to work with you. In terms of, I guess, Are you guys done now, or is there anything that's left that needs to be done or anything that's, Thank you. Yeah, maybe.

David Page: First Jeff congratulation.

Jeffrey Likosar: The officials.

Speaker Change: Oh, that's great.

Jeffrey Likosar: Yes.

Jeffrey Likosar: In terms of.

Jeffrey Likosar: I guess it.

Jeffrey Likosar: Other corporate actions or right sizing of our portfolio.

Jeffrey Likosar: You guys done now or is there anything that's left.

Jeffrey Likosar: Sure.

Jeffrey Likosar: That's attractive to add in terms of an M&A standpoint, or just more color in that regard. Thank you.

James David DeVries: Yeah, maybe a couple of comments and just jump in to add something. Thanks for the question, David.

Speaker Change: Yes, maybe a couple of comments and just jump in to add thanks for the question David.

Jeffrey Likosar: I would say from an M&A perspective, we'll continue to look at bulk acquisition opportunities. They're fairly plentiful for us. And those are, I don't know if we'd officially call that M&A, but it'd be an area where we have an opportunity to deploy capital that yields really attractive returns. If we do any pure M&A, it would be in our core business. And in terms of any future divestiture with commercial sales and solar in the wind down mode, I don't see anything material for us that we would be divesting going forward. Hey, one thing I would add that's maybe a little bit more general than your specific question,

Speaker Change: I would say from an M&A perspective.

Jeffrey Likosar: We'll continue to look at bulk acquisition opportunities there.

Jeffrey Likosar: They're fairly plentiful for us and those are those are I don't know if we'd officially call that M&A, but it would be an area, where we have an opportunity to deploy capital.

Jeffrey Likosar: Net yields really attractive returns.

Jeffrey Likosar: If we do any pure M&A it would be in our core in our core business.

Jeffrey Likosar: And in terms of any future divestiture with with commercial are sold and solar and wind down mode.

Jeffrey Likosar: Don't see anything material for us that we would be divesting going forward.

Jeffrey Likosar: Hey, one thing I would add that's maybe a little bit more general than your specific question, but we feel so good about all the progress we made on our capital structure, having reduced debt over the past year or so, getting our leverage down to where it rounds to three instead of rounding to four, progress with our cash generation, and all that results in just more flexibility for us. So we'll certainly look at things opportunistically, to Jim's point, no specific thing to talk about today, but balancing organic growth, longer-term investments in the company, return of capital to shareholders, and we'll make adjustments as we go and as we come across opportunities. But I would just emphasize the flexibility we now have.

Jeffrey Likosar: And one thing I would I would add that's maybe a little bit more general and your specific question, but we just feel so good about all the progress we've made on our capital structure, having reduced debt over the past year or so getting our leverage down to where it rounds to three instead of rounding to four progress with our.

Jeffrey Likosar: Our cash generation and all that results in just more flexibility for us. So we will certainly look at things Opportunistically to Jim's point no specific thing to talk about today, but but bouncing organic growth longer term investments in the company return of capital to shareholders and we'll we'll.

Jeffrey Likosar: We'll make adjustments as we go and as we come across opportunities, but I just would emphasize the flexibility we now have.

Jeffrey Likosar: Yes.

Jeffrey Likosar: Yeah.

Minav Patniak: All right, thank you for your question. Our next question comes from the line of Minav Patniak with Barclays. Your line is now open.

Speaker Change: Alright. Thank you for your question.

Minav Patniak: Our next question comes from the line of Manav Patnaik with.

Minav Patniak: With Barclays. Your line is now open.

John Ronan Kennedy: Hi, good morning. This is Ronan Kennedy. I'm from MNOP.

Minav Patniak: Hi, Good morning. This is roni Kennedy on for a minute and thank you for taking my question. I think you had referred to the the macro is challenged could you just give us some further insight as to what Youre seeing especially given the news released this morning, I think lower GDP or lowest GDP in almost two years inflation higher than expected. So how you would carry.

James David DeVries: Thank you for taking my question. I think you had referred to the macro as a challenge. Could you just give us some further insights as to what you're seeing, especially given the news release this morning, I think lower GDP or the lowest GDP in almost two years, inflation higher than expected. So how would you characterize the macro, you know, And more specifically, the strength of the customer as you see it, the ADT customer, and perhaps touch on resiliency or any trends you're seeing in delinquency, 31 days past due,

James David DeVries: Right the macro.

James David DeVries: And more specifically the customer the strength of the customer as you see it the ADT customer.

James David DeVries: And perhaps touch on resiliency or any trends youre seeing in delinquency 31 days past due et cetera. Please.

James David DeVries: Yeah, thanks for the question. I'll make a couple of comments. I think Jeff has some things to share as well.

Speaker Change: Yeah. Thanks for the question I'll make a couple of comments I think Jeff has some some things to share as well I think most of the challenge in the macro environment. We're in a in a position to manage.

James David DeVries: I think most of the challenges in the macro environment are in a position to manage. We've managed inflationary pressure from a wages, benefits, and supply chain perspective. Labor is in great shape.

James David DeVries: We've managed inflationary pressure from a wages benefits supply chain perspective.

James David DeVries: Labor is in great shape, we're at a five year low for employee turnover.

James David DeVries: We're at a five-year low for employee turnover. One area that presents some challenges for us, some headwinds from a gross ads perspective is fewer relocations. And that's very real and puts pressure on gross ads. Of course, that's a positive on the retention front. But I think relocation is probably the most pronounced, at least from my perspective, in terms of macro impact on the business. Yeah. And I...

James David DeVries: One area that presents some challenges for us some headwinds from a gross adds perspective as fewer relocations.

James David DeVries: And that is very real and and puts pressure on gross adds of course, that's a positive on the on the retention front, but.

James David DeVries: But I think relocation is probably the most pronounced at least from my perspective in terms of macro impact on the business.

Jeffrey Likosar: Yeah, and I would add in that context, it's not materially different from what we expected entering the year or full year. We noted we expected our SAC spending to be approximately flat and that that goes with an environment where we're not deploying as much SAC because of some of those challenging conditions. I'd emphasize that we will remain disciplined in deploying SAC, in places and across opportunities in different channels and methods of acquiring customers that generate strong economic And we're always seeking to balance all of our objectives, but we're specifically focused on generating cash, you know, as we laid out in our original guidance and as we did in the first quarter.

Speaker Change: Yeah, and then I would add in that context, it's not materially different from what we expected entering the year. Our full year guidance. We noted we expected our sac spending to be approximately flat and that that goes with an environment, where we were we're not deploying as much sacked because because of some of those challenging conditions.

Jeffrey Likosar: I'd emphasize that we will remain disciplined in deploying sac.

Jeffrey Likosar: And in places in across.

Jeffrey Likosar: Opportunities in different channels and methods of acquiring customers that generate strong economic returns and that will continue to be our focus and where we're always seeking to balance all of our objectives, but we're specifically focused on generating cash.

Jeffrey Likosar: As we laid out in our original guidance and as we did in the first quarter.

Jeffrey Likosar: Okay.

Jeffrey Likosar: Yeah.

Jeffrey Likosar: Got it. Thank you. Can I just confirm how the service discontinuations of the past 31 days are trending? Um, yeah.

Speaker Change: Got it. Thank you and then can I just confirm how.

Jeffrey Likosar: It's a service or service discontinuation due to the 31 past days are trending.

Speaker Change: Yeah. So.

James David DeVries: Yeah, so I'll give you a broader picture, Rowan, of attrition overall. So, you know, we ticked up from 12.9 at year-end to 13.1 at March quarter-end. We expect April will end at 13, so it's coming down just a bit. Year over year, we're a little worse for non-pay in April, essentially flat for relocation, and much, much better on voluntary and lost competition. So from a non-pay perspective and from a past-due perspective, we're roughly flat on where we were.

Jeffrey Likosar: The I'll give you a broader picture Rona of attrition overall, so you know we ticked up from 12 nine at year end.

James David DeVries: 213, one march quarter and are.

James David DeVries: We expect April will end at 13, ASO, so coming down just a bit.

James David DeVries: Year over year were a little worse for non pay in April.

James David DeVries: Essentially flat for relocation and a much much better on a voluntary and lost to competition.

James David DeVries: So from a non pay perspective and from a past due perspective, we're roughly flat to where we've been.

James David DeVries: Thank you; I appreciate it. And if I may, could I ask one more question just on the... Google, in the comments on the utilization of the Google Tech platform, I know you have virtual assistants and I think also the system monitoring and response tech, smart assessment of alarms. Can you kind of contextualize in terms of the impact of the timing of the additional opportunities, whether it is that call center operations, the call deflection to more of the advanced turn and propensity modeling, that type of thing, you know, timing and impact, please? Yeah, so, yeah.

Speaker Change: Thank you I appreciate it and if I may can I ask one more just on the.

James David DeVries: The Google and the comments of the utilization of that new attacks Platte Tech platform. I know you had virtual assistance and I think also the system monitoring and response taxes Smart assessment of wires can you kind of contextualize in terms of the impact of the timing.

James David DeVries: The additional opportunities whether it is that call center operation to call deflection to more of the advanced churn and propensity modeling that.

James David DeVries: That type of thing timing and impact.

Speaker Change: Yeah. So yeah Super excited about we've extended essentially expanded our partnership with Google beyond the nest hardware and into working with Google cloud and couldn't be excited couldnt.

James David DeVries: Yeah, so yeah, super excited about. We've essentially expanded our partnership with Google beyond the Nest hardware and into working with Google Cloud and couldn't be more excited about it. The first two areas, as you mentioned, will be in customer care, deploying AI to drive call deflection. We may see some impact on that late this year, but I think most of it starts to become a reality in 2025. And on propensity modeling and churn modeling, I generally say the same thing.

James David DeVries: Couldn't be more excited about it the first two areas as you mentioned will be in customer care deploying AI to drive call deflection.

James David DeVries: We may see some impact for that late this year I think most of it starts to become a reality in 2025.

James David DeVries: And and propensity modeling churn modeling I'd generally say the same thing we're in the early days of <unk> are putting the plan together both of them I think have meaningful upside for us.

James David DeVries: We're in the early days of putting the plan together. Both of them, I think, have meaningful upside for us, but if there's an impact, Ronan, it'll be late this year, with the real fruits delivered next year.

James David DeVries: But if there is an impact grown and it'll be late this year with the real fruits delivered next year.

John Ronan Kennedy: Thank you very much. I appreciate it.

Speaker Change: Thank you very much appreciate it.

Peter Corwin Christiansen: Thank you for your question. Before our next question, as a reminder, it is star number one to ask a question. Our next question comes from the line of Peter Christiansen with City. Your line is now open.

Speaker Change: Thank you for your question.

John Ronan Kennedy: Before our next question as a reminder, its star one to ask a question.

Peter Corwin Christiansen: Our next question comes from the line of Peter Christiansen with Citi.

Peter Corwin Christiansen: Your line is now open.

Peter Corwin Christiansen: Thank you and good morning, and Jeff, welcome back to the CFOC. Great to have you back. Thank you.

Peter Corwin Christiansen: Thank you and good morning, and Jeff welcome back to the CFO seat great to have you back.

James David DeVries: I'm just curious as it relates to the State Farm Partnership, in the states that you have rolled out. How would you compare, I guess, those markets in terms of size and growth versus the rest of, you know, your active market? I'm just trying to get a sense of, you know, after you've had some good success in testing and getting products fit right and sales motions, does that, when you go to newer states, those learnings, are you able to adapt to those pretty quickly in some of your larger markets and accelerate cross-sells even faster? Just curious how you're thinking about that. Yeah, absolutely.

Peter Corwin Christiansen: I'm just curious as it relates to the state farm partnership in the states that you have rolled out.

James David DeVries: How would you compare against those market size growth wise versus the rest of <unk>.

James David DeVries: Your active markets.

James David DeVries: I'm, just trying to get a sense of.

James David DeVries: After you've had some some good success in testing.

James David DeVries: <unk> product fit right in sales motions.

James David DeVries: That when you go to newer states. Those learnings are you able to adapt to those pretty quickly in some of your larger markets and accelerate.

James David DeVries: Cross sells even faster just curious how you're thinking about that.

Speaker Change: Yeah, absolutely Pete and thanks for the question and good morning.

James David DeVries: Yeah, absolutely, Pete, and thanks for the question and good morning. So we made the decision. We're in 13 states already. And in those 13 states, that represents about 40%, I think 41%, of state farm policies in force. So it's a massive TAM.

James David DeVries: So we made the decision were in 13 states already and in those 13 states that represents about 40% I think 41% of state farm policies in force.

Speaker Change: So it's a massive tam.

James David DeVries: Rather than expand to additional states, what we, together with State Farm, decided was, given the size of the TAM, let's get better in these 13 states and execute on our learnings, continue to grow. And as we fine-tune the go-to-market, then begin expanding to states beyond the 13. The single exception to that, as I mentioned earlier, was in Georgia. Georgia and Washington, where we're going to be testing DIY in the June time frame.

Speaker Change: And rather than expand to additional states, what we together with state farm decided was given the size of the Tam, let's get better in these 13 states.

James David DeVries: And execute on our learnings continue to grow and as we bind to the go to market.

James David DeVries: Then they did expand into states beyond the 13.

James David DeVries: Single exception to that that I mentioned earlier was in Georgia.

James David DeVries: The single exception was in Georgia, and Washington, where we're going to be testing DIY in the June timeframe.

Peter Corwin Christiansen: That's helpful. Thank you.

Speaker Change: That's helpful. Thank you and then.

Jeffrey Likosar: And then, Jeff, I'm just curious, you know, with the rising cost of capital and the trend to hire for longer, what you have in terms of the rate of returns you're seeing in some of the portfolios, particularly some of the ones that you've added on in recent quarters. How are you thinking about those returns and, coincidentally, pricing in general? Do you think you have room there to enhance those portfolio returns over time? Thank you.

Peter Corwin Christiansen: I'm just curious to know what the rising cost of capital.

Jeffrey Likosar: You know are higher for longer what have you in terms of the rate of returns youre seeing in some of the portfolios, particularly some of the ones that you've.

Jeffrey Likosar: You've added on in recent quarters.

Jeffrey Likosar: How are you thinking about.

Jeffrey Likosar: Those returns and coincidentally.

Jeffrey Likosar: Pricing in general.

Jeff: I think you have room there.

Jeffrey Likosar: To enhance those portfolio returns over time. Thank you.

Jeffrey Likosar: Yeah, generally, maybe I'll half step back and just remind you that when Jim speaks of the flywheel model, our overall objective is to deploy capital to generate strong returns; our single biggest use of capital is subscriber acquisition spending, and we can generate those returns by reducing the amount of SAC required by increasing the size and really the profitability of the RMR that comes with the customer, so your point about price, and then importantly, extending the duration of the customer life And your recent cohorts of customers are performing well. I noted, for example, the dynamics of larger system sizes and more upfront investment, having the benefit both of reducing the upfront SAC costs but also some correlation with customer retention characteristics.

Jeff: Yeah, generally maybe I'll step back and just remind you and Jim speaks of.

Jeffrey Likosar: Flywheel model your our overall objective is to deploy capital to generate strong returns. Our single biggest use of capital is subscriber acquisition spending and we can generate those returns by reducing the amount of sac required by increasing the size and really the profitability of the <unk>.

Jeffrey Likosar: RMR that comes with it comes with the customers. So your point about price and then importantly, extending the duration.

Jeffrey Likosar: Of of the of the customer life, and we're always working to optimize all of those things and your recent cohorts of customers are performing well you I noted.

Jeffrey Likosar: For example, the dynamics of larger system sizes more upfront investment having the benefit both of of reducing the upfront sat costs, but also some correlation with with the customer retention characteristics. So so we feel really good about the progress and then the the new platform and an ecosystem there that we.

Jeffrey Likosar: So, we feel really good about the progress. And then the new platform and ecosystem that we've talked about rolling out, we believe will make that continue to be the case. And importantly, with more efficiency upfront to be able to acquire customers with less cash out of pocket. So, we feel really good about our ability to generate returns in this environment, assisted by all the new platform work we have coming.

Jeffrey Likosar: Talked about rolling out Yeah, we believe we will make that continue to be the case.

Jeffrey Likosar: And importantly, with more efficiency upfront to be able to acquire customers with less cash out of pocket. So so we feel really good about our ability to generate returns in this environment.

Jeffrey Likosar: Assisted by all the new platform work, where we have coming.

Peter Corwin Christiansen: That's great. Thanks for reacting. That's very helpful. Thank you.

Speaker Change: That's great. Thanks for reaching that that's very helpful. Thank you.

Peter Corwin Christiansen: Okay.

Victoria: Thank you for your questions. There are no additional questions waiting at this time. I would now like to pass the conference back to Jim DeVries, CEO, for closing remarks. Thank you very much.

Speaker Change: Thank you for your question.

Peter Corwin Christiansen: There are no additional questions waiting at this time I would now like to pass the conference back to Jim Devries CEO for closing remarks.

James David DeVries: Thank you Victoria and thanks, everyone for taking the time to join us today.

James David DeVries: Thank you, Victoria. And thanks, everyone, for taking the time to join us today.

James David DeVries: As you heard, ADT delivered solid results in our core CSB business. We continue to invest for the future. Our capital structure continues to be strengthened. We've got good momentum in the business, and we're looking forward to a strong 2024. I'd like to extend my appreciation to our employees, ADT employees, and dealer partners. Our results are a direct reflection of their efforts. So, thanks again, everyone, and have a great day

James David DeVries: You heard ADT delivered solid results in our core CSB business, we continue to invest for the future. Our capital structure continues to be strengthened we've got good momentum in the business and we're looking forward to a strong 2024 I'd like to extend my appreciation.

James David DeVries: Who are our employees ADT employees and dealer partners are our results are a direct reflection of their efforts. So thanks again, everyone and have a great day.

Victoria: That concludes today's call. Thank you for your participation, and enjoy the rest of your day.

Speaker Change: That concludes today's call. Thank you for your participation and enjoy the rest of your day.