Q2 2025 ADT Inc Earnings Call
Hello. And thank you for sending by my name is Tiffany and I will be your conference operator. Today at this time I would like to welcome everyone to the ADT second quarter, 2025 earnings call.
All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star, then the number 1 on your telephone keypad,
Speaker Change: I will now like to turn the call over to Elizabeth Landers vice president of investor relations Elizabeth, please go ahead.
Speaker Change: Good morning, and thank you for joining us to discuss adt's. Second quarter, 2025 results. Today's speakers are gem de breeze, adt's, chairman president and CEO. And just look at our our CFO
Speaker Change: After their prepared remarks, we'll take analyst questions.
Speaker Change: May differ materially please refer to our SEC filings for more details.
Jim: And now I'm happy to turn it over to Jim.
Jim: Thank you, Elizabeth and good morning everyone. I am very pleased that ADT is reporting yet another quarter of strong financial results and cash generation as we continue to execute on our 2025 strategic priorities. Our results continue to demonstrate the resilience of adt's, business model,
82 ended the second quarter with another record recurring, monthly revenue, balance of 363 million which was up 2% year-over-year. We continue to grow total revenue up 7%. While balancing profitability and Investments for the future.
Jim: We also delivered very strong adjusted earnings per diluted share of 23 cents. An increase of 35%
Jim: Cash flow continues to be a highlight with adjusted free. Cash flow, including interest rate swaps of $500 million through the first. Half up 38%, this strong cash generation has enabled us to return 589 million year to date to ADT shareholders through, share repurchases and dividends
Speaker Change: Our customer retention also remains solid with attrition at 12.8% down a tenth of a point from last year's second quarter and slightly higher than last quarter's record performance. I'd also like to note that during the second quarter, we completed a strategic customer portfolio. Acquisition of approximately 50,000 subscribers for 89 million. Jeff will provide more details about our results and full year outlook later in our call first. I'd like to spend the next few minutes updating you on ADT strategic Focus areas which remain consistent with the themes. We've discussed on previous earnings calls
Speaker Change: We are very proud of our progress to date and our progress towards delivering on our full year, 2025 commitments.
Speaker Change: as I mentioned earlier this year, our primary objectives in 2025 are to continue execution of our strategy, and importantly optimized, and complete the roll out of our newly developed and launched capabilities platform and offerings adt's, Mission remains, clear to empower people to protect and connect what matters most
Speaker Change: Delivered through our differentiators unrivaled safety Innovative offerings and a premium best-in-class customer service experience.
Speaker Change: As always, we are relentlessly focused on, delivering unrivaled safety, and peace of mind to our over 6 million customers, who trust us to keep them safe. Every day, we continue to invest in our core monitoring capabilities, including the Technologies and redundant infrastructure that have enabled 100% uptime throughout the first half of 2025. We also continue to advance new technologies and introduce features such as alarm messenger which has enabled more than a 50% reduction in false alarms this year. 1 of the key components of our strategy has been investing in our product and experience, ecosystem to develop new and Innovative offerings for our customers.
Speaker Change: This includes further expansion of our ADT plus platform to a larger percentage of our new customers, increased availability across additional sales channels and enhanced capabilities to enable existing customers to enjoy some of the features available to new customers.
Speaker Change: We continue to see an increasing percentage of our new customers, select our new ADT plus platform. Who are also choosing larger and more comprehensive systems with our reduced use of discounts and promotions. This is driving average installation Revenue to approximately 1,500 per unit. Another contributor to this strong revenue is our trusted neighbor offering which continues to generate positive customer feedback as a reminder. This feature allows our customers to Grant trusted individuals temporary access to their homes.
Speaker Change: Recognition.
Speaker Change: In addition to these Innovative offerings, we remain focused on delivering the best in Industry. Customer experience, we are pleased that adt's customer satisfaction remains at a 3-year High including a record NPS during the month of June.
Adt's results, demonstrate the cumulative benefits from our focus on continuous Improvement across customer experience, metrics, agent satisfaction, and areas, such as virtual Service. First Call, resolution customer onboarding and agent training. Additionally, our partnership with Google remains strong, and our Nest aware of subscriber base has now surpassed 1 million customers highlighting, the continued strength of our collaboration and growing smart home. Adoption turning to our State Farm partnership since our original launch. We have generated slightly more than 30,000 subscribers. While this volume is below, the level we projected at this stage of the partnership, we're pleased that these customers report High satisfaction with the program.
Speaker Change: As we near the 3-year anniversary of our partnership, we're working together on redesigning our approach and leveraging our combined learning to explore a new program related to prospective movers who are relocating, we hope to gain more traction with this new approach.
Speaker Change: We also remain pleased with our progress with adt's remote assistance program and early. Artificial intelligence efforts.
Approximately half of our service calls continued to utilize remote Alternatives rather than requiring in-home service visits allowing us to efficiently serve our customers while avoiding thousands of truck rolls, which ultimately contributes to reductions in our field. Service costs. Our initial AI efforts, remain focused on our customer care operations, with an emphasis on improving, the customer service experience. This is for both our ADT customers and our employee agents. While also improving overall efficiency.
Speaker Change: We built on our first quarter, AI progress with 90% of our customer service chats processed by AI agents. And we are now resolving nearly half of these chats without the need for a live agent. Interaction utilizing the knowledge we've gained from our experience with chat. We have now started our initial roll out of AI agents for voice calls. We remain excited about the opportunities to leverage AI.
Speaker Change: The support and serve our customers more efficiently in closing. I am confident in adt's Outlook, and we remain committed to delivering value for our customers employees and shareholders. I want to say thank you to the entire ADT team for their dedication and performance. I remain incredibly proud of this team as well as encourage for the opportunities that lie ahead.
Jeff: Thank you for your time today. I'll now turn the call over to Jeff.
Jeff: Thanks Jim and thanks everyone for joining our call today.
Jeff: I'll take the next few minutes to share some additional detail on our second quarter results along with an update on our full year outlook.
Jeff: Like Jim. I'm very pleased with our first half performance and our progress towards achieving our full year 2025 objectives.
Jeff: As you mentioned, our very strong cash flow remains a highlight. We generated 274 million of adjusted free cash flow including swaps in the second quarter and $500 million through the first half up 38%.
Jeff: Adjusted net income for the quarter, was 191 million or 23 cents per share and year to date. We have generated adjusted earnings per share of 44 cents up 22%.
Jeff: Adjusted IBA for the quarter. Was 674 million up 7%.
Jeff: Key drivers of this performance, include our RMR, growth overall efficiency and the non-recurrence of a prior year, legal settlement.
Jeff: Our adjusted earnings per share. Also benefited from our repurchases enabled by our strong cash generation and efficient capital structure.
Jeff: our Top Line was also very strong with total revenue up 7% to 1.3 billion monitoring and services Revenue was up 2% driven by a record 363 million RMR balance, also up 2%
Jeff: Installation Revenue was 197 million up 60 million driven by our continued. Mix shift to our ADT plus platform and the outright sales of relevant equipment.
Jeff: Adding 14.3 million of new RMR. Inclusive of our bulk accounts purchase.
another highlight in the quarter is that our leverage ticked lower and is now at 2.8 times adjusted ibida, with net debt of 7.5 billion,
Jeff: Additionally, we continue to enjoy a very efficient weighted average interest rate of approximately 4.4%.
Jeff: We finished the quarter with 45 million of unrestricted, cash on hand and no outstanding revolver balance.
Jeff: I'm also happy to share that. We recently received lender commitments to fund an incremental 550 million of our existing 2032 Term Loan.
Jeff: The pricing on this facility is very favorable at. So for plus 175 basis points,
Jeff: we also entered into swaps to fix the effective interest rate, which at a little over 5.3% is lower than the 5.75%, April 2026 notes. We will redeem with the proceeds.
Jeff: We expect the loan transaction to close tomorrow. And along, with our ongoing cash generation are very well. Positioned to repay, our remaining 2026 notes.
Jeff: As Jim mentioned earlier, we continue to return significant Capital to shareholders enabled by this efficient capital structure and our cash generation.
Jeff: In addition to our 47 million dividend payment, we repurchased and retired 12 million shares during the quarter for an aggregate price of 96 million.
Jeff: Through the first half, we have returned 589 million to shareholders.
Jeff: As we look to the second half, we are on track to deliver full year results. Consistent with the guidance, we shared in February.
Jeff: We are therefore reaffirming our full year guidance ranges for total revenue, adjusted ibida, and adjusted free cash flow.
Additionally, we are increasing our adjusted earnings per share, range by 4 cents.
Jeff: To 81 to 89 cents per share reflecting our lower diluted share count.
Jeff: I will note that the timing of marketing expenses working capital flows, cash interest and potential tariffs will affect our second half relative to the first
We expect third quarter, adjusted ibaa and EPS to be similar to or slightly lower than the second quarter. And the larger sequential decline in adjusted free cash flow.
The most significant specific driver is the timing of cash interest, which we expect to be approximately 70 million higher in the third quarter.
Jeff: Despite ongoing uncertainty as to the exact amounts.
Jeff: We continue to believe, we can absorb our tariff exposure within our full year, guidance ranges.
Jeff: With the first half of the Year behind us. I am exceptionally pleased with our progress and remain confident in delivering our full year objectives.
Jeff: Like Jim, I want to thank all our employees Partners, customers and investors for helping us deliver a very strong first half of the year.
Jeff: Thank you, everyone, for joining our call today and for your support of our company.
Jeff: Operator. Please open the line to questions.
Jeff: If you would like to ask a question press star 1 on your telephone keypad to withdraw your question simply press star 1. Again we will pause for just a moment to compile the Q&A roster.
Speaker Change: Your first question comes from the line of George Tong with Goldman Sachs. Please go ahead.
George Tong: Good morning.
Speaker Change: You completed a bulk account purchase for 89 million, this quarter that added around 50,000, customer accounts, can you talk more about what made this account purchase? Uh, vocal account, purchase economically, attractive and your appetite for future local account purchases.
Speaker Change: Uh, sure George, it's Jim uh, good morning. We um, we have as as you know, executed both deals and I think 5 of the last 6 years, uh, in Q2, we brought on, as you mentioned, 50,000 accounts. Uh, these were acquired from a single seller, uh, they the, um, the accounts had high density, uh, good credit scores, uh, as you know, we always build in attrition protection for ADT and we did. So, again this time, uh, the returns for bulk are generally consistent with our dealer business. Uh, the bulk pipeline is strong, uh, I I'd say probably stronger than we've seen even in the last couple of years, and, um, we'll continue to review bulk as an option for, uh, incremental subscriber ads.
And new customers being acquired.
Speaker Change: Uh, sure. Um so I I mentioned on the call our, uh, program today subscriber ads is right around 33,000, uh, candidly George. The, the trajectory has been positive for us, but the pace and the volume, uh, isn't what I think either party had hoped to achieve. Uh, we're right now in the process of Designing a new approach that's focused on movers on, uh, prospective, uh, uh, customers who are relocating. Uh, it's not necessarily the last effort in trying traditional distribution with State Farm, uh, new States the same tactics, uh, that we've been focused on in the past. But it's a fresh tactic and, um, and we'll lean in and uh, see if we can get some better traction here. Uh, lastly, it's probably worth mentioning, we conservatively budgeted new subscribers from the State Farm partnership. Uh,
We're hopeful. I'm hopeful the new approach carry some momentum. Um, but even if it doesn't, the results won't be material to our gross ads budget, uh, or or delivery of our, um, Financial commitments. Uh, thanks for the question, George.
George Tong: Very helpful. Thank you.
Peter Christensen: Your next question comes from Peter Christensen with City. Please go ahead.
Uh, good morning. Thanks for the question. Nice results here. Uh, gentlemen. Um, I want I want to get back to the the the uh bulk uh, bulk perch, uh, purchase that you did in the quarter. I don't know. We we figure LTV to CAC somewhere in in the mid-30s potentially but I I which, which sounds great. Um, I I was just wondering, Jim, can you just talk about
Jim: When you do a, when you think about these bulk purchases, the, the opportunity to uplift a lot of these customers convert them on to new systems, how do you think about the incremental value that you can drive uh, by fully merging the these customers onto the ADT platform, particularly with a lot of the, the new products and solutions that you've been, uh, delivering, thank you. Yeah. Thanks Pete. Um, so the playbook for us on bulk is is a well-established Playbook. Um, we have a team that's focused on it, we do a really good job. Um, converting customers. There's there's some to be frank some uh, heightened attrition at the beginning of the conversion. That's why we build in the attrition protection, usually, for 12 months, sometimes a little bit
Jim: Longer, uh, but um, the the swing to our monitoring and, um, and our service is something that we, um, we do. Well, I mentioned Pete. We always look for high density. Uh, have have accounts in a concentrated geography that helps us with service costs. Uh, we are, uh, conscious of the equipment, uh, that, that we're acquiring this most recent, uh, acquisition bulk acquisition, had high quality Equipment. We feel great about, um, and so, uh, and and then we pay a lot of attention to the credit scores and, uh, ensure that we have a, uh, High credit quality customer when when we bring them on board. Um, but all in all, I I think it's a well-worn Playbook, uh, 1 that we execute well, and, um, I'm optimistic. This will be a supplemental uh, way for us to grow subscribers, going forward and 1.
Jim: Point I I might add is is is is is is Jim notes. The returns are very strong, you can think of it similar to dealers a little bit less efficient at the time of acquisition, your your point about the, the acquisition cost, but it's because we have insight into the other characteristics including the attrition protection including knowledge of the account base. But your specific question about seeking to upgrade those customers or or have additional um sales or Revenue opportunities over time.
Jim: On that, but that for sure would would be an opportunity. But when we speak of their terms, we're not banking on that.
Yeah, that's that's good to hear. Certainly sounds like a lot of opportunity but this is a customers uh, Jim. I also want I would love to to to dive a little bit in to trust their neighbor. You know, what are you seeing from initial feedback there and and and and pick up of of the product. You know, how how do you see things trending with the with that new launch?
Jim: and I, I'll share on this call and um,
Jim: Is it trusted neighbor is the initial product to launch. Uh, it's the first part of an overall product ledge strategy to, to drive growth for us. Uh, trusted neighbor was launched in August of 24. Uh, it's it's still relatively early, uh, but we continue to be optimistic. Pete, uh, trusted neighbor represents I, I think something north of 10% of our, um, do it for me installations. Uh, and uh, the customer response has been really positive, uh, our field sales and technician response has been positive. And, uh, very importantly, the average installation revenue for our uh, installs. That include trusted neighbor is north of 2500, pretty, pretty meaningfully above our overall average. So uh, it's got um, it's got good traction out of the gate and uh, feel great about the install re
Jim: That's that's good to hear. Glad to see that expanding. Thank you.
Jim: Thank you.
Speaker Change: Your next question comes from the line of manov. Patnick with Barclays, please go ahead.
Speaker Change: Hi, good morning. This is Ron. Kennedy. I'm from manov. Thank you for taking my questions. You mentioned, Jim in a prepared, remarks efforts around a crease availability across additional sales channels. I think, on the prior calls, you talked about an emphasis on sales process and go to market, optimization initiatives, uh, refining structure, bundling pricing marketing. Can you provide more color around these in an update? And if, for example, that includes say, more deliberate focus on DIY or
Speaker Change: other efforts.
Speaker Change: Uh, sure, uh, Ronin. Thanks for the question. The, um, we're, we're always working, I think, on, on sales process and optimization, uh, testing new bundles testing new pricing, uh, 1 of the more meaningful shifts that we've undertaken over the course of the last 12 months, and I'd say accelerated in the last 6 months or so. Uh, is a, a process change to focus on what we call Tech engineers. And so the, um, the customer is sold an initial basic system. And when the tech engineer arrives at their home, arrives at their premise, the technician, both sells and up both sells and installs
Speaker Change: Uh, the equipment and 1 consistent motion. Uh, we've had really good success with, um, with install Revenue using this technician engineer, uh, construct. Uh, the customer feedback has been positive because the sale and install can happen simultaneously. And, uh, it's, it's been a been a nice change and a nice win for, um, for our organization, um, but across, across all, um, offers pricing process. Um, we're we're constantly, um, adjusting the knobs and dials Ronin and, um, and and trying to improve conversion.
Speaker Change: That's very helpful. Thank you. If I may um, go to attrition for a follow-up actually, a 2-part question, can you provide color in the drivers of attrition and then as far as relocation having been a headwind to gross ads but a Tailwind to attrition how do how should we think about the puts and takes to that under you know different scenarios of the housing market say if it continues to remain challenged versus
Speaker Change: and it picks up, and if there's anything to be mindful of their such as lapping, a relocation tail with medicine,
Sure. Um, so a little bit of color on attrition uh, specifically related to relocation. Um, as you know, we ended the quarter at 12.8, uh, attrition, uh, down 10, uh, base points from last year, a couple ticks up sequentially, uh, color on Q2. Uh, non-payment cancellations were modestly higher than last year, uh, relocation losses. Were were actually modestly lower than last year. Um, voluntary losses were a bit worse than last year. We had a, um, large loss in our multi family, uh, business that accounted for about half of our voluntary losses, um, save rates. We're we're modestly down as well. Um but all in all a a pretty good quarter for us. Um, you're right that relocation losses. Uh,
Speaker Change: Attrition and uh, uh, a bit of a headwind when it comes to, uh, gross ads. Uh, but, um, despite that fact, we had a had a pretty decent quarter on the gross ads front and as you heard a minute ago, supplemented by, um, some pretty good. Return bulk. So, uh, last thing I'll mention on attrition the, um, we are, we continue to feel optimistic? I think this was in the prepared notes, our NPS, uh, continues to improve. We had our best scores in 3 years on NPS, all-time record in June, uh, call center metrics. Our clipping along nicely for us, continue to improve and, uh, our, um, the customer response to self-service uh, has has been really positive. So uh, as as I said, a bunch of times that Trisha won't be uh attrition Improvement won't be linear uh but but we are optimistic about where it can go longer term.
Thank you. I appreciate all the insight there. Thank you.
Ashish Sabadra: Your next question comes from Ashish sabadra with RBC.
Ashish Sabadra: Hey, good morning guys, this is Will chi on for she sabadra, appreciate you taking our question. Uh, let me know if you could, maybe spend a little bit of time, um, just on your views on the macro environment. I know there's a lot going on but you know curious how you're seeing kind of the general end client. Uh, behaving, there's any developments on that. I know you mentioned kind of a
Ashish Sabadra: Modest uptick in slower payments. Uh, the prior quarter though not not notably material but curious, if there's any updates on that front.
Ashish Sabadra: Uh, sure, uh, thank thanks for the question. I, I, I start with the with some context, our, our business. Um, we feel is very resilient and most any environment. And, uh, while we're not insulated from, uh, the macro environment, we tend to be, uh, uh, organization and have a model that performs. Well, uh, in any environment, um, relocation is, uh, is trending down. I think across the country, a bit, uh, that. Um, as I mentioned on the earlier, question provides a bit of a headwind when it comes to gross ads. Fewer bites at the Apple, uh, but it's a nice Tailwind for us on retention. Uh, non-pay has increased, uh, from last year we're watching it very closely. Uh, the increase has been relatively modest in non-pay cancellations, uh, labor market.
Ashish Sabadra: Markets cooling a bit. Uh, that's been, uh, helpful to the cause from an employee retention of perspective. Um, and then I'm not sure, uh, if it's, if it's considered macro or not, but, uh, we're watching tariff pressures, uh, closely. Uh, that's obviously difficult to predict, uh, given given the
Ashish Sabadra: Frequency of change. Uh, we have a team focused on it. Um, and as Jeff mentioned, in his prepared remarks, uh, we can manage the net exposure to, uh, tariffs within the 25, uh, guide.
Ashish Sabadra: and 1 1 thing, I would add on the resilient point is is as you know, most of our revenue is
Ashish Sabadra: Is recurring in the truest sense of the word recurring. So, so as as and if we start to see Trends or Dynamics, you know, we tend to see them with enough foresight that we're able to make other adjustments in, in our business, which is, which is why we're able to even even in this environment even with someone certainty affirm, or or guidance and and as you saw increase our EPS guidance in the results or the release we put out today,
Speaker Change: Thank you. That's that's very helpful and maybe just a follow-up on the uh, the State Farm side. Curious. If, if you might be able to provide additional color on on some of the learning points on the initial stages of the partnership. Um, and you know, how that's been formed uh, the new redesign strategy.
Speaker Change: Sure. The um, the the central thesis is, is 1 that I continue to believe that, um, by having monitored, uh, professionally monitored 24 devices in the home, that, that can be a source of claims, mitigation, large claims mitigation and fire and, uh, and, uh, water in particular. Uh, and I also think that there's the
Speaker Change: Customers that are uh changing geographies and uh we're working together with um with State Farm uh and and uh and external organization that has some very deep digital expertise. Um to design a um a new tactic around those movers and uh see if we can't get a little more volume than uh than what we've had today.
Understood, thank you very much. Appreciate the color.
Speaker Change: Sure.
Speaker Change: Your final question comes from Tony Kaplan with Morgan Stanley. Please go ahead.
Speaker Change: Hi, good morning. This is Yehuda Silverman on for Tony Kaplan.
Speaker Change: Just had a question on subscriber growth and demographic Trends in general. So it's, it's been relatively stable, past few quarters and Years Around 6.4 million customers, just curious aside from bulk purchases, what are some ways that you could take market? Share, are there any changes to your targeted demographic or any products or themes that you think are shaping the industry in the midterm or the long term?
Speaker Change: Uh, sure, I think on the, um, so we we continue. I continue to be bullish on our Core difm Business. Uh, I'm excited about the product. Uh, roadmap. I like what, uh, the direction we're heading in terms of Premium customer service. Uh, there's some differentiation that I think, uh, will be able to deliver around monitoring uh, quality and speed on the monitoring front and so continue to be bullish on difm DIY, uh, for us, uh, we had tightened our credit standards, uh, we were returns focused, we're making some changes to the go to market on DIY, uh, the product set and cost in DIY so that we can more assertively compete in that space. So, it's a little bit of a Hiatus, the last handful of months. And I think by the end of this year, uh, early 26 will be able to compete.
More effectively in DIY. Um, and then I continue to be bullish on the small business channel. Uh, that too is an area of uh, of increased Focus for us. Uh, we have a new leader, uh, over the SMB space and, uh, I think that's the third leg of the stool that, um, helps us get some traction on Gross ads. Uh, we, we also, uh, have been talking a couple of times on the call about bulk acquis.
Speaker Change: Positions. Um, frankly, our dealer channel was down a little year-over-year. We replaced that volume with bulk Acquisitions. Uh, but I think, uh, dealer will get back on track in the second half. And uh, bulk opportunities are more plentiful than what they've been historically. And I and I would add to a little bit further to, I believe it was ronin's question about about optimization and and a lot of those things are to do with the nature of offer, the the recurring price versus The Upfront price. Um, you know, when we offer financing and when we don't some some of those when Jim says knobs and dials. But but there there's also things related to that to do with features and 1 of the reasons. In fact, the main reason that we transition to our proprietary ADT plus platform was to enable things like trusted neighbor and we continue to make adjustments. Some, some smaller, some larger, including some of the things that that you you see, with respect to biometric lock, um, the the home away,
Automation feature that that we noted and and those are also the kinds of things that we're able to put in front of of customers who are more attractive to a particular feature or a particular use case. And and as we look Beyond 2025, we we would expect more of that as a means of driving growth as well.
Great. Thank you.
Speaker Change: That would conclude our question and answer session. And I will now turn the call back over to Jim defreeze for closing remarks.
Thank you, Tiffany, and thanks everyone for taking the time to join us today. Um, ADT had a strong quarter, and a, uh, strong first half of the Year, we're confident um, as as we reiterated earlier in achieving our financial commitments for 2025. Um, I'd like to again extend my appreciation to our ADT employees and dealer Partners uh thanks again. Everybody and have a great day.
Speaker Change: Ladies and gentlemen, that concludes today's call, thank you all for joining. You may now disconnect