Greetings and welcome to ADT’s Third Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Jason Smith. Please go ahead.

Thank you, operator. Good afternoon, everyone, and thank you for joining us on ADT’s third quarter 2018 earnings conference call. This afternoon, we issued a press release and slide presentation on our quarterly results, both are available on our website at investor.adt.com. Our remarks today will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. These risks include, among others, matters that we’ve described in our press release issued this afternoon and our filings with the SEC. Please note that all forward-looking statements speak only as of the date of this call and we disclaim any obligation to update these forward-looking statements. During today’s call, we’ll make reference to non-GAAP financial measures. Our forward-looking non-GAAP financial measures exclude special items, which are difficult to predict and mainly dependent upon future uncertainties. For a complete reconciliation of historical non-GAAP to GAAP financial measures, please refer to our press release issued this afternoon and our slide presentation, both of which are available on our website at investor.adt.com. Joining me on today’s call are our President, Jim DeVries; and our CFO, Jeff Likosar. I’ll now turn the call over to Jim.

Thank you, Jason. It’s a pleasure to speak with everyone this afternoon about our strong third quarter results, the significant strategic progress we made during the quarter and our favorable outlook. I’m pleased to share that we generated growth across all key financial measures, including revenue, adjusted EBITDA and free cash flow. We grew total revenue 6% to $1.148 billion in the quarter, driven by residential Pulse penetration, continued improvement in customer retention and strong momentum in signing new commercial and multi-site accounts. We grew adjusted EBITDA 3% to $610 million, and importantly, we’ve generated year-to-date free cash flow before special items of $479 million compared to $381 million in the year prior, an increase of 26%. This financial performance is a direct result of our team’s focus on profitable growth and the metrics we know to be most closely tied to our overall financial success. These metrics include customer retention and the efficiency with which we acquire new customers. I’d like to share a few comments about both. During the third quarter, we improved our gross customer revenue attrition on a trailing 12-month basis by 40 basis points versus a year ago to 13.4%, and that also compares favorably to last quarter’s 13.6% level. This improvement reflects our focus on high-quality customer selection and providing quality service to our customers. Turning to net subscriber acquisition cost, or SAC. Due to our continued optimization, we were able to improve our customer revenue payback on a trailing 12-month basis to 2.4 years versus 2.5 years in the prior year period. On a granular basis, this year-over-year improvement is due to increased installation revenue and greater efficiency in selling and installation costs. As we’ve mentioned, every 1/10 of a point of improvement in revenue payback equates to approximately $60 million in annualized…

Thanks, Tim, and thanks, everyone for joining the call today. We’re pleased to report our third quarter results, which continued to reflect our balanced approach to growing the top line, enhancing adjusted EBITDA and generating strong cash flow. I’ll summarize a few highlights and then share our updated full year outlook. Consistent with last quarter, our overall third quarter revenue grew by 6% year-over-year, which included 2% growth in monitoring and services revenue. Our monitoring and services revenue growth was driven by higher monthly recurring revenue, or RMR, which itself was driven by higher average prices and better gross customer revenue attrition. We also generated 68% growth in installation and other revenue, which was driven by the continued execution of our commercial growth strategy, including the benefit of recent acquisitions. Adjusted EBITDA of $610 million was up 3%, driven by our higher revenues, including revenue generated through outright equipment sales, which was partially offset by the associated costs. A highlight in the quarter is that we increased our new RMR additions by 7%, and this marks our fourth consecutive quarter of year-over-year growth after declines in 2016 and 2017. We did this with a 5% increase in net subscriber acquisition costs, or SAC, reflecting continued improvement in our customer revenue payback, which on a trailing 12-month basis improved to 2.4 years versus 2.5 years in the prior year period. This is a result of the increased installation revenues and improved overall efficiency in selling and installation costs. We saw a reduction in our net expense SAC due to higher installation revenues on outright sales and other efficiencies while a capitalized SAC was up, primarily on higher year-over-year additions in our dealer channel. Adjusted net income of $194 million was down 7%, due primarily to the higher net SAC I just…

At this time, we’ll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Toni Kaplan with Morgan Stanley. Please proceed with your question.

Thank you. Good afternoon, guys. I wanted to ask about the capitalized SAC costs going up this quarter. You mentioned the increase in dealer accounts. And so just wanted to understand your thought process in terms of balancing, buying new accounts to get more subs versus keeping the SAC costs steady and generating more free cash flow. I know there’s a balance there and so wanted to see just make sure that there is sort of no change in prior strategy and just get your thoughts on how you’re balancing those.

You bet. Thanks for the question, Toni. This is Jim. I have a couple of comments, and I’ll ask Jeff to expand on it. To answer your question, there is no change in the approach to dealers. Dealer had a terrific quarter for us, and we will periodically and opportunistically buy bulk accounts. This is something that we’ve done in the past, and we will continue to do. We’re pleased with the multiple that we acquired, the bulk four, and as you’ve noted had a reasonably sizable bulk in the third quarter. But in the main, the strategy is not different, and we’re pleased with the economics of the bulk acquisition. Jeff?

Yes, I’d just add that we value both channels as we described in the past. You have strong partnerships across our dealer network. It’s a very important asset. Roughly magnitude about half of our ads come from dealer about half, direct. That can vary from one quarter to the next. One thing I’d point out to is that from an accounting perspective, as I think you understand from your question, but dealer accounts are 100% capitalized, whereas on the direct accounts, in some cases, certain of that expense is capitalized for sure. But when we sell outright to our direct customers, that is it goes to the P&L, and that’s where we particularly seen progress in driving revenue payback efficiency among other things by generating more revenue at the time of install. So the original part of your question about balancing objectives, that’s the name of the game for us, and we’re focused on spending cash to grow where we see high-efficiency growth and doing so within the framework of the cash flow guidance we’ve shared since the beginning of the year and which is, in fact, we’ve taken up a bit.

That’s great. And then my follow-up on attrition. So you narrowed the attrition guidance to the higher end of the prior range. Just wanted to find out about sort of why the change? Maybe is that implying less confidence in the attrition improvement over the year? Or – and then just more broadly, Jim, just can you talk about your confidence about continuing to bring down attrition over time? How low can that number go? Just thoughts on the long-term on attrition as well. Thanks.

Yes. Thanks, Toni. So on the attrition front, I’ve mentioned a handful of times that the next 200 basis points are going to be harder than the last 200 basis points. We continue to be exceptionally confident that we will improve the attrition level over time. We’re very pleased with the 40 basis points year-over-year improvement, the 20 basis points sequential improvement and as a headline remain bullish on improving attrition. It won’t always be linear, but we’ll continue to see improvement. In terms of a long-term estimate, we’ve had best-in-class figures that were in the range of 11% over time. That’s a long way away from where we are now, but it’s the kind of number that we’re shooting for over time. We think that we can get to best-in-class with time. We’ll continue, Toni, to deploy the tools that we’ve used to get us to this point. Great customer service, improving coordination between our call centers and our branches. You’ve heard us talk about our playbook. Deeper penetration in the connected home will help us. The increased commercial mix in our business will help us. We’ll continue to have a disciplined customer acquisition process. And all of those traditional tools give us confidence that we’ll continue to improve attrition and then some emerging tools, data analytics. We’re looking at different internal management incentives to ensure that we are completely focused and have incentives aligned with driving improved attrition and then voice analytics. So we think that there’s still some opportunity. It’s likely that the improvement will be slower going forward than it has been the last year or so, but we’re bullish on the improvement and confident that it will continue.

Our next question comes from the line of Manav Patnaik with Barclays. Please proceed with your question.

Hi, this is actually Greg calling in. Just wanted to ask about the Red Hawk acquisition. In terms of how you’re thinking about the cost and revenue opportunities there. And then also may be a little bit on their exposure to fire space. I know in the past, you’ve talked about in the commercial space having an advantage of being a security-first provider. So just wondering how you’re thinking about the fire as an opportunity going forward.

Let me start, Greg, with a little bit of context about the commercial business. I’ll be brief, but I think it’ll be helpful as a context as I share some perspective on Red Hawk. We see the commercial business as a meaningful growth opportunity for us. We’ve had a series of tuck-in acquisitions. Our core business has done well. As you likely know, we’ve been in the commercial business for 100 – 143-year of existence and see the momentum that we have in both commercial accounts and national accounts as an important growth lever for us. When we include our business customers, small business customers in our business customer account, it will represent something in the neighborhood of a quarter of our revenue after Red Hawk. It’s obviously a different economic model. It’s more efficient from a capital usage standpoint. It’s been a major contributor to improving our expense SAC. And basically, we have higher install revenue, lower RMR, a little bit better retention and the business has really high IRRs. So we’re excited about the commercial business. We feel good about the momentum we have in the core. And now, to your question about Red Hawk, we’ve provided some information already, purchase price of $370 million, 2018 revenues estimated a little north of $300 million. We’re very happy with the valuation. We expect it to be modestly cash flow accretive in 2019, more so in 2020 as we realize additional synergies. Red Hawk has a terrific attractive financial profile, multiyear contracts, good attrition. They have a very high IRR business. And strategically, it expands our scope of services not unimportantly to your question about fire. It basically brings us into the fire space, and we’re excited about that expanded capability. So it’s a great fit for us. The talent on the team is tremendous. We’re in a service business, and we win or lose with talent. And Red Hawk is well known for having an exceptional group of talented employees and a experienced leadership team. So we’re excited about commercial. We’re excited about Red Hawk, and very specifically, to your question, excited about the opportunity to expand into the fire space.

Okay, that makes sense. And maybe to continue on the commercial point, it doesn’t seem like there are that many Red Hawk’s out there in terms of sizable independent players. So just wondering about the strategy going forward in the commercial space, if we should expect more the tuck-ins that we’ve seen this year or what should we think about the M&A?

So you’re absolutely right. Red Hawk is I think the last ending independent commercial integrator of their size, and there are – there just aren’t many Red Hawk’s out there. We’ll continue to look at tuck-in acquisitions. It will – M&A organic and inorganic growth will continue to be part of our commercial strategy, and we’ll look at tuck ins from a strategic perspective and just wrapping them right into our core as we have so successfully in the past. I should mention on the tuck-ins, I think this is something that Tim had shared a number of times, and we certainly share the philosophy. In many respects, we view tuck-ins as an opportunity to acquire talent, and we’ve been exceptionally successful in retaining the talent that we acquire through the tuck-in acquisitions. I don’t think there’s a founder that we’ve acquired that isn’t still part of the company, including those that we acquired in 2018. So long story short, we’ll continue to look at tuck-in acquisitions and strategic M&A in the commercial space.

All right.

Our next question comes from the line of Pete Christiansen with Citi. Please proceed with your question.

Good afternoon. Thanks for taking my question. Jim, I was wondering if you can give us a sense of the competitive landscape for new subscribers. Have you seen any changes at least on a like-for-like basis in terms of pricing discounting? I know you benefit from an ARPU point of view but with the changing shifts, but wondering if you’re seeing any pressure there.

Thanks for the question, Pete. I would say in the main, we’re not seeing a significant change in the competitive landscape. We all are aware of the DIY entrants, and in particular, what Amazon is doing with Ring, but it hasn’t changed who and what we confront from an acquisition standpoint. And not unimportantly, it’s really not here’s a radar screen for us from an attrition standpoint. As you know, we pay close attention to the attrition numbers and why people are leaving. And the competitive landscape and the intensifying of that landscape isn’t anything that has hit our radar screen for an attrition or an acquisition perspective. I should have mentioned, Pete. I think our conclusion is that at least part of the reason for that is this notion that we are going after discrete customers. There’s certainly some overlap between the new entrants in DIY and our traditional customers. But in the main, that overlap, we believe, is fairly limited and so we are competing for a customer that’s interested in a professional install and professional monitor – professionally installed and professionally monitoring service and the DIY folks, of course, are interested in something much smaller and often including simple point solutions. So I would say in the main, we haven’t seen a difference from a customer acquisition or attrition perspective.

That’s helpful. And then as my follow-up, as we look towards our models and looking into 2019, at least from the Red Hawk acquisition, and I know you’re waiting to disclose more on that, but is there – can you give us a sense at least of what the mix is between recurring and I guess just interim quarterly kind of contributions?

Thanks, Pete. It’s Jeff. We’re not prepared to share a whole lot of specificity here, but I would tell you compared to our core business, it’s a lot heavier towards installed revenues than it is recurring revenue. It’s meaningfully more than half is of an installation variety.

Okay, thank you.

Thanks, Pete.

Our next question comes from the line of George Tong with Goldman Sachs. Please proceed with your question.

Hi, thanks. Good afternoon. I wanted to dive deeper into your recently expanded Amazon partnership. Can you frame what kind of an impact do you expect the partnership to have on subscriber acquisition costs, retention rates and growth subscriber adds going forward and the timing for when the benefits may show up in free cash flow performance?

Good afternoon, George. Thanks for the question. It’s difficult with precision to answer precisely what Amazon’s going to do for us from a tax perspective and a growth perspective. Let me share a little bit of color around the Amazon relationship to give you some perspective, some added detail on how we think about the relationship. I’m sure you’ll understand we’re somewhat limited and what we can discuss, but let me try to answer what I can about ADT and Amazon together. So a couple of high-level points just to start. The first is in many respects, our relationship with Amazon is just an extension of a relationship that started in 2017 when we began to work on voice integration with Alexa. The relationship now is deeper than that, but we’ve had a relationship with Amazon for not a short period of time. And ultimately, George, we see ourselves as an aggregator of technology, and we always want to be aggregating cutting-edge technology and use that tact to provide safety and security for our customers. And that is one of the lens that we use when we interact and work with Amazon. How can we use audio detection available through Alexa to provide more peace of mind for our customers. And more specifically, I’ll give you three or four dimensions of the Amazon relationship. From a product standpoint, essentially, Alexa Guard will turn echo and dock devices into audio sensors that can be integrated with our ADT Pulse system, when the customers away from the home and then use for effectively audio detection, another sensor in the home. ADT will be the only professional install and monitoring service partner with Amazon at launch. We see ADT frankly as an ideal partner to deliver this kind of capability to the home. Our tech force 24/7 customer service, 24/7 monitoring and just a great partnership with them. And then there’s a co-marketing dimension of this as well that I can share exist, but really I’m not able to go into the details of what I can share. So it’s early in the game. We are not yet able, with specificity, to predict what it’s going to do from a growth or SAC perspective, but we’re bullish on the relationship. I think internally, we appreciate that it’s a complex relationship with Amazon, but we think that there’s an opportunity here to create value together and then sharing that value.

Got it, makes sense. And as a follow-up, you’ve increased your full year free cash flow guidance now for two consecutive quarters. Can you discuss which areas of the business have delivered the most upside versus your initial internal expectations to drive that upward revision to free cash flow guidance?

Yes, thanks, George. It’s Jeff. So a couple of things. One is we’ve also increased our EBITDA guidance so it’s a drop through of the higher EBITDA. The commercial part of the business and the installation revenue are the two areas I would call out as having contributed to that cash flow. There’s some volatility from peer-to-peer or quarter-to-quarter, so it’s just not quite as linear as the revenue or EBITDA, but we feel really good about our performance through the first nine months really across the entire set of financial statements, but particularly continuing to generate free cash flow. And the other thing I’d highlight is a little bit of follow-up to some of the earlier comment is that we’re really excited by having had our largest quarter of RMR additions that we’ve had in the past couple of years and the 7% growth. So we’re particularly excited to do that and be able to continue to generate the free cash flow.

Very helpful, thank you.

Our next question comes from the line of Gary Bisbee with Bank of America Merrill Lynch. Please proceed with your question.

Hey, guys. Good afternoon.

Hey, Gary.

So I guess, the first question, at the time of the IPO, you talked a lot about the concept of variance management and the new data systems that you’d put out across the ADT network last fall as a potential big driver of efficiency. You used that to improve – I guess, improve the performance of the worst performers among other things. Can you just give us an update now that you’re, call it, a year into that, now what’s the learning curve for all the people who have the data and are using the data now? And have you really begun to deliver results? Or is that one of the biggest opportunities looking forward over the next year? Just an update on how you’re doing there will be helpful. Thank you.

You bet. Thanks for the question. A couple of things I’ll share. When we think about variance performance management in particular, we sort of think about it within as a tool within our playbook, and it’s an important tool, but it’s one tool among many, Gary. So when we work with our branches, we’re trying to drive the customer centricity. We’re driving a higher accountability culture. We’re incredibly metrics-focused both leading and lagging indicators. You’ve heard us talk about the importance of our scorecard, something that Tim and a senior exec on our team named Don Young had worked to perfect over years. We worked to drive employee engagement. The executives here, as you know, kind of roll up your sleeves executives, and we’re down in the weeds in the business. We measure absolutes, not just average us. And so it’s sort of within that context, that variance performance management is another tool for us in the ecosystem. It’s an important tool, but it’s just one of six or seven that we use as part of our playbook to drive improvement. I would say over the course of the last year or so, and frankly, since the acquisition of ADT since in May of 2016, we’ve had pretty good success. The variances have shrunk across a handful of key metrics, including attrition. We still think that there’s some pretty significant opportunity for us going forward. But in summary, the playbook has worked. It worked at protection one before ADT and it’s worked very well at ADT. Room for improvement, still some opportunity, but we feel great about the results from deploying those tools.

Great, thanks. And a follow-up will be just – can provide a little more discussion on the economics of the commercial business? I guess, I’m trying to understand if you talk about multiyear contracts and good retention, but then you talk about the majority of the revenue being install and other, is that really install revenue? Meaning they got to keep signing up new customers to get it? Or is it something else that’s more recurring, but within that other category? And the second part of that, just how – you’ve talked about cash flow being good, but what’s the margin, the profitability of the commercial business? How is that trending, either Red Hawk specific or just the quarter of your revenue that’s now commercial? Thank you.

Yes, so Gary, it’s Jeff. So first, for Red Hawk. There’s a combination of all those things. So when I say installation is that that would be installing equipment. It could be fire systems, it could be access control systems, other types offerings with an eye towards turning those installations into a recurring revenue stream. In some cases, that recurring revenue stream is contractual, and in other cases, it’s not contractual. Not contractual will be periodically come out and fix something that’s broken or do an inspection without a contract and contractual will be some kind of recurring maintenance agreement. Our strategy generally or monitor agreement for that matter, our strategy generally with acquisitions is to buy them and over time, drive them towards having more of the recurring revenue, more contractually committed revenue, and that certainly will be the case for Red Hawk just as it has been for some of the smaller acquisitions. The margin rates on these commercial companies tend to be lower – significantly lower than in our core business, and that’s largely because due to the economics or different inasmuch as they don’t require an upfront investment to acquire that contract the first time. So in the core residential business, for example, margin rates are higher. That higher margin rate is in some ways recovering the upfront investments. So we tend to look at this through an IRR lens and look for places where if the ongoing profitability is lower, it’s because the upfront investment is also quite a bit lower. So it’s really an IRR focus the way we look at commercial versus residential.

Thank you.

Our next question comes from the line of Kevin McVeigh with Credit Suisse. Please proceed with your question.

Great, thank you. Just to follow-up on Red Hawk. Can you give us a sense of what the pro forma leverage will be on the balance sheet post the deal? Number one. And then just could you talk about kind of any client overlap you have currently or whether you’re not? It’s kind of a new set of clients within kind of the core business within ADT?

Thanks, Kevin. It’s Jim. I’ll answer the second one quickly, and then asked Jeff to answer the first part of the question. In terms of overlap, it’s exceptionally minimal. So that issue is not a problem for us in the acquisition whatsoever.

Yes. So from a leverage perspective, you would – I talked about in my prepared remarks, we’re – we view our balance sheet as a source of strength. We’re happy with our current position you would gone from 4.7 to 3.9 times leverage. The acquisition of Red Hawk will not change that in a material way. As you may be saw in the 8-K, we have financing commitments equal to the purchase price. We also finished the quarter with more than $250 million of cash on hand so we’re evaluating our overall capital structure in conjunction with the closing of Red Hawk and then may be awarded to about capital allocation generally as that long-term cash generation continues to be our primary goal. We will look to repay debt over time, but we also will look for accretive M&A that furthers a long-term cash flow generation focus or otherwise asked to shareholder value. But no material change to leverages as a result of Red Hawk.

Got it. That’s super, helpful. And then just a quick follow-up. Jim, as you think about obviously 11% attrition further down the road, was that based on kind of the 85%, 15% residential, commercial? And is there opportunity to kind of build on that as you remix the business more towards commercial? And what, I guess, what I’m asking is at 11%, what would be the business next in terms of residential versus commercial?

It’s a tough one to answer, Kevin. I would say we will continue to be advantaged on our attrition level because of the increasing mix in the commercial space and the national account space. National account attrition is exceptionally low. Our commercial attrition is a little bit lower than residential. And so will be a lower level of attrition is wind aided because of commercial, but the significant improvement is going to come from us deploying the same tools that we’ve been deploying over the course of the last couple of years and then starting to lean into some of these emerging tools that I’d mentioned in response to Toni’s question. We haven’t used data analytics in a particularly sophisticated way yet. The importance of discipline customer acquisition for us will stay a core principle. But to date, we’ve done little more than credit checking, and there’s opportunities for us to do everything from predictive analytics to churn modeling and just get more sophisticated to drive that number down. We talked about voice analytics. I can’t remember if we talked about voice analytics on an earnings call or at non-deal road show or not, but essentially, we’re able to use voice technology to predict and measure customer sentiment when customers are interacting with our call center reps and then in a proactive way, reach out to those customers who we believe are vulnerable based on those voice analytics. Again, that’s a tool and a technology that we haven’t used to date and is available to us as we go forward. So I think at the end of the day, the improvement in our attrition is going to be a mix between a higher commercial revenue base and the deployment of our traditional tools and then using some data analytics and emerging technology just to continue to get better.

Super, thank you.

Thank you.

Our next question comes from the line of Jeff Kessler with Imperial Capital. Please proceed with your question.

Well, thank you for taking my question. You’ve talked a bit about audio detection that you’re bringing in, partly from Alexa partly from what you developed on your own. As companies in the professional business seek to justify their – the higher RMR and higher value proposition that they talk about, what can you do in terms of both the residential side and the commercial side to take what you have in the technology now in audio detection and perhaps in video as well perhaps down the road and start creating a verification capability that would allow you to basically stand way out in front of your competition and way out in front of the DIY area who do not yet have a verification capability as more and more and more and more false alarms get out there because there’s so much more sensors coming out there.

Fantastic question, Jeff. Coincidently, we are here today with Jamie Haenggi who you know is sitting with me. [Indiscernible] she’s doing a bunch of work in this space. And as you were asking your question, she raised her hand, and I’m going to turn it over to her to give you a more thorough answer than I can provide.

Hey, Jeff, how are you? Great question and certainly, Don Young was here. He was going into a whole volume of things that we’re doing in this space. I mean, ADT has been very advanced in terms of really bringing false alarm, verification to the market, really a leader in bringing video verification and hourly audio. I mean, Son of Charles has been kind of in that market space in the commercial side for years and I think Amazon is exciting and that it brings that kind of audio detection and – I mean, there are things that we’re doing, Don Young is the incoming President of the monitoring Association so really working cross functional across the industry to make sure that we’re staying standards around professional monitoring, particularly as we think about integrating it directly into 911 and law enforcement direct responders. There are things that we’re doing to build kind of a pipeline into that so that we can take audio detection and video and bring it right into the vehicle, right, of first responders. We’re also, I think Don is currently done that PPVAR and Tom Nakatani is now coming in as the Vice President PPVAR as well. So video and audio are two really main areas, but it is what you said, we’re putting those pieces together. We’re working with the standard body and then we’re actually bringing technology to create a pipe so that we can take that directly into law enforcement. The other piece I would say in terms of false alarms or add additional security is what we’re doing also with AT&T on first net. If you’re familiar with that, AT&T launch the first responder, so AT&T is the first company, security company, to actually be on first net so being able to deliver signal with ease and in a catastrophe.

All right, great. Second question. I guess one of the things that – and I’d like to get a better handle on, is when you bounce back – you’re bouncy back and forth quarter by quarter with regard to the percentages coming out of internal sales and your outside – dealer sales and I’m wondering given that you do have one large, you have a large dealer material inside of the dealer business. Can you talk a little bit about is there a difference in the – I’m going to call it a little absurd, but the level of technology or the level of, let’s call it, sales and where the dealers want to take the end user, is that any different than what your internal people are doing? Are there are some nuances that we should know here as you continue to build up both of those areas on the regulatory side?

Yes, great question, Jeff. We have about 200 dealers. And as you pointed out, they’re a handful of very large dealers that dominate much of the volume that we see coming through that channel. I would say the sales process is more and more aligned between the dealer channel and direct. One of these bellwether comparisons is the pulls take operate and over the course of the last two or three years, the dealers are fast catching up to what we do on the direct side. The – I think the take rate for Pulse in the third quarter was 74% and some meaningful part of the trajectory on improvement over the course of the last few quarters has been because of the dealers are selling more consistently Pulse product as what we’re selling on the direct side. So there’s not much difference any longer in how the dealers all versus direct.

Okay, great. I could have – I have set of more questions, but I will hold off. Thank you very much. I appreciate it.

Thank you, Jeff.

Ladies and gentlemen, we’ve reached the end of our question-and-answer session, and I would like to turn the call back over to Jim DeVries for closing remarks.

Thank you, operator. Thank you, everyone, for joining us on today’s call. I want to thank my ADT colleagues, our dealer partners for continuing to drive our terrific results through their tremendous efforts on a day-to-day basis. Thank you again for joining us today. We look forward to updating you with our full year results. Have a good evening.

This concludes today’s teleconference. You may now disconnect your lines at this time. Thank you for your participation.