Good morning. I'd like to welcome you all to the ADT Fourth Quarter 2023 Conference Call. My name is Brika and I will be your moderator for today. I would now like to pass the conference over to your host, Elizabeth Landers, Senior Director of Investor Relations of ADT to begin. So Elizabeth, please go ahead.

Thanks, operator and good morning, everyone. We appreciate you joining today's call to discuss ADT's year-end results for 2023. Speaking on today's call will be ADT's Chairman, President and CEO, Jim DeVries; and our Interim Chief Financial Officer, Jeff Likosar. Following the prepared remarks, we'll take analyst questions. Earlier this morning, we issued a press release and 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 was reported as discontinued operations. Financials and metrics for current and historical periods discussed on this call will be for continuing operations, except for cash flow, which includes amounts related to the commercial business through the date of sale. Today's remarks also include forward-looking statements to 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 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 the ADT Investor Relations website. And with that, I'm excited to turn the call over to Jim.

Good morning and thank you for joining us today to discuss the release of ADT's fourth quarter and full year results. 2023 was a pivotal year for ADT and we delivered solid performance, invested for the future, reshaped our portfolio and meaningfully improved our capital structure. With the divestiture of our commercial business and the decision to exit residential solar, we have simplified our business model and focused on our consumer-oriented core security and smart home business. Our remaining business serves a large and growing market and we are the proven industry leader with durable customer relationships that generate substantial and predictable cash flows. After having reduced our debt by $2.1 billion during 2023, we entered 2024 with additional strength and flexibility with our debt-to-adjusted EBITDA leverage ratio, now at 3.2x. Our team is now entirely dedicated to growing our core consumer businesses, deploying capital to invest in the future, further reducing debt and providing strong returns to shareholders. I'll share several financial highlights, which continued to demonstrate very solid performance in our core business. For the full year, we grew revenues and earnings consistent with our expectations. Total revenue was approximately $5 billion, driven mainly by our Consumer and Small Business or CSB segment at $4.7 billion, up 6% versus the prior year. We generated adjusted net income from continuing operations of $439 million or $0.51 per diluted share. We also posted adjusted EBITDA of $2.4 billion with adjusted free cash flow including interest rate swaps of $525 million. ADT ended the year with a record recurring monthly revenue balance of $353 million, up 4% which benefited from strong attrition of 12.9%. We also continue to improve our revenue payback, now at 2.1 years. I'll note that our fourth quarter results included a strategic customer portfolio acquisition for just under $90 million. This bulk account acquisition is complementary to our existing customer footprint and was comprised of 57,000 subscribers. Given our strong economies of scale and best-in-class service capabilities, we will continue to periodically consider portfolio acquisition opportunities such as these. Against a challenging macroeconomic backdrop and in consideration of our portfolio shifts, we are pleased with our strong performance and agility throughout the year. As we begin 2024, our core focus remains on delivering safe, smart and sustainable solutions to our customers with an emphasis on innovative offerings, unrivaled safety and a premium best-in-class customer service experience. Towards that end, a primary set of initiatives during 2024 is centered on methodically rolling out our new ecosystem of customer offerings and experiences. Last December, we launched our new ADT+ consumer app and new integrated and proprietary hardware set for professionally installed customers in select pilot markets. This follows the rollout of our ADT+ app to self-setup customers earlier last year. We plan to expand to broader geographies and customers throughout 2024 and are confident in the differentiated capabilities this new platform will enable, especially as we develop additional use cases tailored to our customers' unique needs. The new platform will further leverage our Google Nest partnership, which has already enabled us to accelerate our technological offerings, particularly around the fast-growing areas of camera and video analytics. The improved camera take rates contributed to approximately $1,400 of install revenue per new customer during this past year. It has also improved customer satisfaction with higher net promoter scores for customers with Google devices, exceeding the rest of our customer base. In addition to our new offerings, we continue to make substantial progress in improving our operating efficiencies and customer experience. As an example, I would like to highlight our virtual assistance program, which launched mid-2022 and recently crossed a threshold where we are closing 50% of service tickets virtually versus the alternative of rolling a truck. In addition, we have further broadened our relationship with Google beyond the Nest hardware, with a 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. Our State Farm partnership also continues to progress. And as a reminder, is defined by the significant benefit to our combined customers' need for proactive risk detection and prevention at little to no cost. We closed 2023 with the offering available in 13 states and have plans in early 2024 to enter 4 more and continue to make methodical progress, navigating local approvals and testing in new geographies. Similar to our experience with Google, customers with our joint State Farm offer also report very strong customer satisfaction and the majority have purchased additional products and services beyond the base offering. We are making significant investments in our infrastructure, including the newly modernized and integrated CRM platform, a refreshed cloud-based ERM, e-commerce capability and the retirement of various legacy systems. Collectively, we expect these efforts will improve our efficiency and customer experience, while also enabling better and faster insight to meet our customers' needs. Underpinned by these and other initiatives, we are forecasting solid growth in revenue, earnings and significant growth in free cash flow in 2024. I especially want to underscore our commitment to delivering strong cash flow growth during 2024 and in the years to come, which combined with the leverage reduction I noted earlier, enables us to confidently return capital to shareholders, resulting in our recent announcement of a 57% increase in our dividend and a $350 million share repurchase program authorization. Before I turn things over to Jeff, I'll take just a moment to touch on the exit of our residential solar operations which we also recently announced. This was a difficult decision but as a result of the challenging conditions in the industry and our trajectory during 2023, our board and I concluded that winding down operations would generate more value for shareholders than continued investment in this space. I would like to acknowledge the efforts of our solar employees and thank them for their dedication and time with ADT. I'll now turn the call over to Jeff, who will take you through our financial results, including guidance for 2024.

Thanks, Jim and thank you, everyone, for joining our call today. I'll take the next few minutes to share some additional comments on our 2023 financial performance and our 2024 plans. Total company revenue was $1.2 billion for the fourth quarter and as Jim mentioned, $5 billion for the full year 2023. Total company adjusted EBITDA was $599 million for the quarter and $2.365 billion for the year. Strong CSB revenue and margins offset solar losses, generating slight total company adjusted EBITDA growth for the quarter and the year. Adjusted fourth quarter net income was $226 million or $0.25 per share and $439 million or $0.51 per share for the year, as Jim also mentioned. Our CSB segment delivered total revenue of approximately $1.2 billion in the fourth quarter and $4.7 billion for the full year, up 6%. Full year monitoring and services revenue grew 3%, driven by the record RMR balance Jim described. Full year installation revenue increased by 44%, driven by higher deferred revenue amortization and higher outright sales. Installation revenue per unit was up approximately 14%. The trend towards larger system sizes also contributes to our improved revenue payback at 2.1 years and strong 12.9% attrition rate. CSB adjusted EBITDA was $627 million in the quarter and $2.481 billion for the year, an 8% increase. In addition to the higher revenue, we also demonstrated progress on our cost efficiency efforts. The resulting benefits enable stronger profitability and the investments in the ecosystem and infrastructure priorities Jim described. Overall, we delivered solid results while also investing for the future and are very pleased with our CSB 2023 performance. As a reminder, early last October, we closed the disposition of our commercial unit, which is presented as discontinued operations. We used the net sales proceeds to repay $1.5 billion of debt. The resulting interest savings will approximately offset Commercial's 2023 contribution to adjusted free cash flow through the sale date. The Solar segment generated $50 million of revenue and a $28 million adjusted EBITDA loss in the fourth quarter. For the year, Solar's adjusted EBITDA loss was $117 million on $330 million of revenue. We had previously written off all solar goodwill and impaired certain other assets in connection with our partial shutdown in 2023. As announced in January, and as Jim mentioned, we are now winding down operations altogether. As we refocused our business during the past year, we continued strong cash generation in CSB. Total company adjusted free cash flow, including interest rate swaps, was $525 million for the full year. This was down slightly versus 2022 driven by solar performance and higher net interest expense offsetting the CSB progress. Combined with commercial proceeds, our cash generation contributed to total debt repayments of $2.1 billion last year. We thereby reduced our net debt-to-adjusted EBITDA ratio to 3.2% versus 3.9% at the end of 2022. In recognition of our progress, both Moody's and S&P upgraded our corporate debt ratings last year. We also refinanced our $1.4 billion term loan B, extending the maturity to 2030 and reducing borrowing costs by 35 basis points. Aside from the remaining $100 million of 2024 notes due this April, we now have no significant debt maturities until 2026. Substantially, all our debt is now effectively at a fixed weighted average rate of 4.5%. We feel very good about our reshaped capital structure, our ability to generate cash and our commitment to delivering shareholder returns. These factors led to the quarterly dividend increase and share repurchase authorization Jim mentioned in his remarks. The substantial progress we've made in recent years enables these actions while we continue to invest in and grow our business. Turning to forward guidance. Our balanced and disciplined approach to cash generation and capital allocation underpins our plans for 2024. Our budget is anchored by our resilient growing RMR, capital-efficient SAC, a well-controlled cost structure and reduced financing costs. These factors drive very strong growth in adjusted free cash flow, including swaps, which we expect to be $700 million to $800 million. At the midpoint, this represents growth of 40%. We are also guiding to continued revenue and adjusted EBITDA growth in our core CSB business. We expect full year CSB revenue in a range of $4.8 billion to $5 billion and adjusted EBITDA in a range of $2.525 billion to $2.625 billion. Additionally, we expect continued positive and growing adjusted earnings per share of $0.60 to $0.70. Our strong planned cash growth is primarily driven by CSB adjusted EBITDA growth with approximately flat SAC and our solar exit. As mentioned earlier, the effect of the commercial disposition is approximately offset by lower cash interest. As a reminder, the first quarter is historically our lowest cash flow quarter and we expect 2024 trends similar to 2023. Additionally, these measurements exclude restructuring and other related costs, such as expenditures we will incur due to our solar exit. Before turning to Q&A, I want to underscore my enthusiasm about our progress during the past year. We have meaningfully sharpened our focus, strengthened our cash generation and enhanced our capital structure. We entered 2024 better positioned to invest in near and long-term growth while returning capital to shareholders. I'm very excited by our prospects for this year and beyond. This progress would not be possible without our customers, employees, dealers, suppliers, partners, communities and investors. I want to thank all the stakeholders for their continued support of ADT. Thank you, everyone, for joining our call this morning. Operator, please open the line for Q&A.

And we have the first question from George Tong of Goldman Sachs.

You talked about the decision to exit your solar business. Can you elaborate on logistical next steps with the exit and the timeline for when you might be able to fully wind down the business?

Sure, George. It's Jim. Thanks for the question. I have a couple of comments to just sort of set the pins on solar and then I'll ask Jeff to add some comments as well. As you know, we announced the restructuring and strategic review in Q3. And then in late January, announced the decision to exit the solar business, all wind-down activities are underway. So headcount reductions were now less than 500 employees in solar, will be less than 250 by the end of the quarter. We're focused on finishing existing jobs, installing the pipeline. We've shut off marketing investments, shut off new sales. We're engaged in wind-down activities like selling the inventory and the trucks, subleasing the real estate. And we've got a governance structure around the solar wind down to help navigate costs and timeline. And Jeff, if you want to comment some on the costs and the time?

Yes. I just would add that we are seeking for sure to optimize economics, the disposition of the assets and the remaining activities, including especially the existing pipeline of jobs but we're also focused on speed and risk mitigation. So we'd expect to have the vast majority of the business wound down in the next couple of months with some ongoing service obligations. And then, of course, we're committed to take care of our customers. So we shared some more information in the press release and we'll also, with our 10-K and an 8-K later this afternoon. As to the ranges, we're going to work to make this as efficient as it can be. And then there's also a couple of things where we still have to work through precisely what the accounting effect is going to be. But we are expecting, as I said, to have this largely in the rearview mirror in the next couple of months.

Got it. Very helpful. And then as it relates to State Farm, you mentioned that you closed out 2023 with 13 states early this year. You're going to enter 4 more. Can you provide an update on monetization efforts with State Farm, including recent wins, the scale of your revenue base with State Farm and then projections for how big the opportunity can be?

Yes, George, it's Jim. I'll address that. We launched the partnership in March of 2023 and achieved approximately 6,000 sales during the year. We are now operating in 13 states, which accounts for about 40% of State Farm policies in force, indicating a strong overlap. As I've mentioned before, each month shows improvement over the last, and that trend is continuing. In January 2024, we recorded around 1,600 new sales. About two-thirds of the systems include an upsell, which we're pleased about. Customer satisfaction remains extremely high at around 97% to 98%, and our collaboration with State Farm is going well. We plan to pilot a few alternatives in four different states, with two states featuring a DIY offering and the other two states having a water-led offer that will be marketed to State Farm customers who have previously filed water claims. We are looking forward to testing these new ideas while we expand in the 13 states where we are currently active.

Our next question comes from Toni Kaplan of Morgan Stanley.

Jim, you made a number of comments about technology, modernizing the CRM system, virtually closing 50% of the service tickets through virtual and some additional. Should we see some of these efficiencies flow through to margins in the future? Or is the plan to reinvest the efficiencies that you received from this and any way to size some of the efficiencies from technology?

Yes, that's a great question, Toni. There are several opportunities that we’re very enthusiastic about. We're making strides in AI and digital work, and as you mentioned, we’re enhancing virtual support not just for service but also for installation add-ons for our existing customers. We've invested significantly in our technology, and I believe these investments will reach a peak in 2024. The improvements in IT spending will start to manifest in 2025 and later, and we will see reduced IT expenses from 2025 onward. The margin enhancement tied to virtual support is included in our 2024 forecast. Anything else, Jeff?

Yes. I would add that you asked specifically about efficiency, which is definitely part of our objective. However, some of the benefits will also be seen in the growth of features and capabilities that appeal to various customer segments, improved service, and consequently, reduced attrition. So, it's a combination of efficiency and our ongoing efforts to grow and serve our customer base and recurring monthly revenue.

That's great. And then I wanted to ask about DIY. I know you mentioned in the last answer about piloting 2 DIY pilots with State Farm. And then I know you have the DIY business that you launched a number of years ago. Maybe you could just give us an update on how big it is, how fast it's growing and your strategy around DIY going forward?

Yes. It's still smallish for us, Toni but I think DIY for us will be an opportunity for growth going forward. There's a lot of growth here. It's not where the profit pools are compared to DIFM but when you look at DIY through the lens of customer lifetime value, I think it becomes particularly interesting to us. So we have a small business, we're going to lean into this business more assertively in 2024 and that's inclusive of the pilots that you just mentioned related to State Farm.

And Toni, it's Jeff, one thing I would like to add to is, as we roll out the new ecosystem of products and the app, that Jim described, the same hardware will be available for either self-setup or for professional install. So in some respects, the distinction will blur a little bit and much of what we're focused on here is having offerings to serve and that are attractive to a broader set of customers, many of whom will choose to install it themselves. We'd love for even those customers to choose to avail themselves of our professional install services as well.

Your next question comes from Ashish Sabadra from RBC.

Wanted to focus more on the Google partnership. You talked about how it's helped double the IRPU in the 3 years. Can you talk about the uplift that you're seeing on the RMR side as well? And just in terms of penetration where like particularly for the new customers, how much penetration is there but also the opportunity among your existing customer base as they upgrade?

Yes, it's going well with Google. Both organizations are collaborating effectively on various aspects, including quality testing, supply chain, and customer experience. The products have strong appeal among customers. We're seeing benefits from increased installation revenue at the time of install. I may have mentioned last quarter that in the year before our partnership with Google, 23% of our new customers had more than 10 devices, and in 2023, that number has risen to 57%. This has significantly improved our SAC efficiency since customers who invest more at installation also tend to stay longer. Our 4-year retention rates for customers with more than 10 devices are about 50% better than those with fewer. Google customers report higher NPS, greater product satisfaction, and more positive feedback on functionality, dependability, and even aesthetics. Overall, we feel very positive about the partnership with Google, as it continues to progress well.

And we now have the next question from Manav Patnaik from Barclays.

This is Ronan Kennedy on for Manav. If I may, please, just looking to follow up on the questions on State Farm with regards to further penetration opportunities. Can you talk about how we should expect to see continued impact in the KPIs, whether it's the higher IRPU or the SAC efficiencies on a granular level? And then broadly, could you remind us of how we should think about framing the timing of when you would expect to see material revenue impact from the State Farm partnership?

Sure. Thanks for the question. I’ll collaborate with Jeff on this. As we gain more traction with State Farm, the model differs from our traditional DIFM model. While the internal rate of returns are about the same, possibly slightly higher, the recurring monthly revenue will be lower. Our average recurring monthly revenue for a State Farm customer is around $30. The cost to acquire that customer is also significantly lower due to limited marketing and sales expenses. This will enhance customer acquisition cost efficiency on a per unit basis, although recurring monthly revenues will be lighter. Jeff, do you have anything to add?

I would even expand that slightly to say that this applies to our overall model as we progress. Some characteristics I mentioned earlier, further reflecting Jim's remarks, include having more bundles or a wider range of disaggregation combinations available for our customers. Our model aims to optimize overall economics, which involves the cost of acquiring a customer, the duration of customer retention, and the revenue we generate from serving that customer over time. State Farm, similar to some other segments we are targeting, produces a high internal rate of return, as Jim described, but has a different makeup of those variables.

Okay. And then for my second question, please. Following the strategic bulk acquisition, I think you had said you will continue to periodically consider portfolio acquisition opportunities. You've significantly enhanced shareholder returns with the buybacks, a significant increase in the dividends delevering, etc. Can you just help us frame the approach and priorities for capital allocation?

Certainly, Ronan. I would characterize our capital allocation strategy as focused on returns and opportunistic. There are four main areas to consider. First is organic growth, targeting SAC and internal rates of return in the 20s. Second, we are looking at bulk account purchases or mergers and acquisitions within our core business. Third, we prioritize returning capital to shareholders through dividends and stock buybacks. Lastly, reducing our debt remains a key focus, and we are committed to maintaining leverage at or below 3x by the end of the year. The main takeaway is that we will conduct thorough analysis and ensure our capital is allocated towards these four key priorities with an emphasis on maximizing shareholder returns. Thank you, operator and thanks, everyone, for taking the time to join us today. As you heard, ADT delivered solid results in our core, invested for the future, reshaped our portfolio and meaningfully improved our capital structure. We've got good momentum in the business, great catalysts for growth and we're looking forward to a strong 2024. I'd like to extend my appreciation to our ADT employees and dealer partners for an outstanding quarter and year. Our results are a direct reflection of your efforts. So thanks again, everybody and have a great day.

Thank you all for joining. I can confirm that does conclude the ADT Fourth Quarter 2023 Earnings Conference Call. You may now disconnect your lines and please enjoy the rest of your day.