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. I would now like to pass the conference over to your host, Elizabeth Landers, Senior Director, Investor Relations. Thank you. You may proceed, Elizabeth.

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 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 is reported as discontinued operation. 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 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 and thank you to everyone for joining us today to discuss ADT's first quarter results release 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. 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. That growth is further enhanced by our extraordinary combination of concierge-like professionals, blue-chip partners and expanded 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 on methodically rolling out our new ecosystem of customer offerings and experiences as well as related back-office infrastructure. As you know, we launched our new ADT+ platform for professionally installed customers in select markets last December following the rollout of our ADT+ 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 will plan to make the first of these available on our platform later this year. 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 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 in the growth opportunity with State Farm to drive significant benefit to our combined customers' need for proactive risk detection and prevention. We will further unlock the power of our ecosystem with the full scaling of our ADT+ platform, new hardware and refreshed IT infrastructure, including advancement 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. 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 instead 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 and customer care. 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's 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, 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. 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. 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. I'd now like to turn the call over to Jeff Likosar. Jeff had been serving as our interim CFO since December, and he'll now officially return to the CFO seat. 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 Jeff in this capacity again.

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. 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 by our $353 million RMR balance, which was also 3% higher year-over-year. We generated gross customer additions of 187,000 and $11.4 million of new RMR additions. This level was generally consistent with our approximately flat SAC. Importantly, we'll remain disciplined in subscriber acquisition 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 unit remained strong at nearly $1,400. 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 cancellations 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, 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. 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, was $111 million compared to $16 million in the prior year quarter. Lower interest on reduced 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, 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 cost by 25 basis points. Our debt remains at 3.2x adjusted 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 4.5%. 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. 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, we benefited in the first quarter from some timing items and 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 lower cash interest in the second quarter versus the first. 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 will not be possible without your contributions and support. Thank you, everyone, for joining the call today. Operator, please open the line to questions.

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

Thank you for the question. We are very excited about ADT+. The initial launch of ADT+ is comparable to what we have been installing in terms of both hardware and software up to now. What excites us most about the platform are the features that will be introduced in future rollouts. Any potential growth we foresee in 2024 is somewhat limited. We have launched in a few markets and will be expanding nationally in the upcoming months. However, we believe the significant advantages of the ADT+ platform will become more apparent in 2025.

George, it's Jeff. I'd add to your question, 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 towards 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.

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 what the client feedback has been like?

Yes, absolutely. So the launch, as you know, George, was March of '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. 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. 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.

This is David Paige on for Ashish. First, Jeff, congratulations on the official CFO title role. It's great to see. Looking forward to working with you. In terms of, I guess, other corporate actions or rightsizing the portfolio, are you guys done now? Or is there anything that's left that needs to be done or anything that's attractive to add in terms of an M&A standpoint or just more color in that regard?

Yes. I have a few comments to make, and Jeff can jump in afterward. Thank you for your question, David. Regarding acquisitions, we will keep searching for bulk acquisition opportunities, which are quite abundant for us. While we may not officially label these as mergers and acquisitions, it is an area where we can invest capital for good returns. If we pursue any traditional mergers and acquisitions, it will be within our core business. As for future divestitures, since we have sold the Commercial segment and are winding down Solar, I do not anticipate any significant divestments moving forward.

One thing I would add that is perhaps a bit more general than your specific question is that we feel very positive about the progress we’ve made on our capital structure. We have reduced debt over the past year, bringing our leverage down to around 3 instead of 4, and we have improved our cash generation. This all results in more flexibility for us. We will definitely look at opportunities as they arise. While there’s nothing specific to discuss today, we are focused on balancing organic growth, long-term investments in the company, and returning capital to shareholders. We will make adjustments as needed as we encounter opportunities, but I want to emphasize the flexibility we now possess.

This is Ronan Kennedy standing in for Manav. You mentioned that the macro environment is challenging. Could you provide additional insights into what you're observing, especially in light of today's news release regarding the lowest GDP in nearly two years and higher-than-expected inflation? How would you assess the macro situation and specifically the strength of the ADT customer? Additionally, regarding resiliency, are you noticing any trends related to delinquency, such as customers being 31 days past due?

Yes. Thanks for the question. I'll make a couple of comments. I think Jeff has some things to share as well. I think most of the challenge in the macro environment, we're in a position to manage. We've managed inflationary pressure from a wages benefit supply chain perspective. Labor is in great shape. We're at a 5-year low for employee turnover. One area that presents some challenges for us, some headwinds, from a gross adds perspective is fewer relocations. And that's very real and puts pressure on gross adds. 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.

Yes. And 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 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 returns, and that will continue to be our focus. And we're always seeking to balance all of our objectives, but we're specifically focused on generating cash as we laid out in our original guidance and as we did in the first quarter.

Got it. Can I confirm how the service discontinuations over the past 31 days are trending?

Yes. I'll provide you with a broader overview of attrition overall. We increased from 12.9 at year-end to 13.1 by the end of the March quarter. We anticipate April will finish at 13, indicating a slight decrease. Compared to last year, we're experiencing a slight decline in nonpay for April, staying about the same for relocation, and showing significant improvement in voluntary attrition and lost competition. Overall, from a nonpay and past due perspective, we are roughly in line with where we've been.

Appreciate it. And if I may, could I ask one more just on the Google and the comments of the utilization of the Google tech platform. I know you have virtual assistance, and I think also the system monitoring and response tech, the smart assessment of alarms. Can you kind of contextualize in terms of the impact of the timing from the additional opportunities, whether it is that call center operations, the call deflection to more of the advanced churn and propensity modeling, that type of thing, timing and impact, please?

Yes, I am very excited about our expanded partnership with Google, which now includes collaboration on Google Cloud in addition to Nest hardware. The initial focus areas will be on customer care, utilizing AI to enhance call deflection, with potential effects expected late this year, although most significant changes will likely occur in 2025. Similarly, for propensity and churn modeling, we are still in the initial stages of planning, but both areas hold substantial potential for us. If we experience any impact, it will be toward the end of this year, with more substantial results anticipated next year.

Jeff, welcome back to the CFO seat. Great to have you back.

Thank you.

Jeff, I'm interested in how the State Farm partnership is performing in the states where it has been launched. How does the market size and growth in those states compare to your other active markets? After achieving positive results in testing and refining product fit and sales strategies, are you finding that you can quickly apply those insights to new states, enabling you to accelerate cross-sells in your larger markets? I'm curious about your perspective on this.

Yes, definitely, Pete. Thank you for your question. We decided to focus on the 13 states where we are currently operating, which account for about 40% to 41% of State Farm policies in force, representing a substantial market opportunity. Instead of expanding to more states, we chose to improve our performance in these 13 states by applying our insights and continuing to grow. Once we refine our go-to-market strategy, we will look to expand beyond these initial states. The only exception to this plan is Georgia and Washington, where we will test DIY in June.

Yes. Generally, maybe I'll step back and just remind, Jim speaks of our flywheel model, our overall objective is to deploy capital and 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 we're always working to optimize all of those things and your recent cohorts of customers are performing well. I noted, for example, the dynamics of larger system sizes, more upfront investment, having the benefit both of reducing the upfront SAC cost, but also some correlation with the customer retention characteristics. So we feel really good about the progress. And then the new platform and ecosystem that we've talked about rolling out, we believe we'll 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.

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, Victoria, and thanks, everyone, for taking the time to join us today. 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.

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