Greetings, and welcome to ADT Inc’s Fourth Quarter and Full-Year 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] Please note, this conference is being recorded. I would now like to turn the conference over to your host, Jason Smith, Senior Vice President of Finance and Investor Relations. Thank you, sir. You may begin.

Thank you. Good evening, everyone, and thank you for joining us for ADT’s fourth 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 historical and 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 on our website at investor.adt.com. Joining me on today’s call are our President and CEO, Jim DeVries; our CFO, Jeff Likosar. Also, joining us and available for Q&A is Don Young, our CIO and EVP of Field Operations. I’ll now turn the call over to Jim.

Thank you, Jason, and thank you, everyone, for joining us today. This evening, we’ll share our fourth quarter and full-year results, our strategy for driving strong and balanced growth across our increasingly diverse end markets and our favorable outlook for 2019. We’re pleased to share that during our first year as a public company, we exceeded our initial 2018 financial outlook, while raising guidance during the year. A large part of our strong financial performance stemmed from improved operating efficiency, which we accomplished through better customer service, stronger retention, improved capital efficiency and ultimately, better revenue payback. Additionally, we strengthened our core residential business as evidenced by growth in RMR additions and adoption rate for ADT Pulse that continues to climb and improvement in our trailing 12-month gross customer revenue attrition from 13.7% last year to 13.3% as of this most recent quarter. Another 2018 achievement was our commercial expansion, returning ADT to our deep roots in this business. We demonstrated strong organic revenue growth and supplemented this with complementary growth platforms and acquisitions that brought us talent and capabilities to ADT. Red Hawk, in particular, immediately brought us an enhanced product portfolio, including fire products and services, a broader geographic reach, deep customer service capabilities nationwide and a proven leadership team. Turning to our strong fourth quarter results. We once again generated growth over our key financial measures, including revenue, adjusted EBITDA and free cash flow. We grew total revenue 7%, driven by strong installation revenues that were up more than 50%, along with continued penetration with ADT Pulse, further improvement in customer retention and the December acquisition of Red Hawk. We grew adjusted EBITDA 3% to $614 million and our free cash flow before special items was more than double compared to the prior year’s fourth quarter. Obviously,…

Thanks, Jim, and thanks, everyone, for joining our call today. Our fourth quarter results reflect a strong finish to the year and our balanced approach to growing revenue, adjusted EBITDA and free cash flow. Our overall fourth quarter revenue grew 7% year-over-year, with approximately 2% resulting from the Red Hawk acquisition completed in December. Breaking this down, we saw 3% growth in monitoring and services revenue, driven by higher monthly recurring revenue, or RMR, which benefited from higher average prices and better gross customer revenue attrition. Our installation and other revenue was up 56% during the fourth quarter, driven by expansion of our commercial business, both organically and through recent acquisitions. Adjusted EBITDA grew 3% to $614 million, with the most noteworthy driver being the higher revenue I just mentioned. Drilling down into some of the metrics that drove our fourth quarter performance. Our end-of-period RMR, including Red Hawk, reached $347 million, a 4% increase over the prior year period and our new RMR additions were approximately $13 million, up 2% year-over-year. Our customer revenue payback on a trailing 12-month basis improved to 2.4 years versus 2.5 years in the fourth quarter of 2017. This improvement in payback is the result of continued increases in installation revenues and margins and improved overall efficiency in selling and net installation costs. Our overall net subscriber acquisition cost, or SAC, were up 2% over the prior year. Breaking this down, our net expense SAC was down 8% due to higher installation revenues on outright sales and other efficiencies, while our capitalized SAC was up 4%, primarily on higher year-over-year additions in our dealer channel. Turning to adjusted net income. We generated a 33% year-over-year increase to $101 million for the quarter, driven by EBITDA growth and a reduction in net cash interest paid…

At this time, we’ll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of George Tong with Goldman Sachs. Please do with your question.

Good afternoon. I’d like to ask about the Amazon partnership. Can you give us an update on how that partnership is ramping, not so much from the technology integration perspective, but more so on the business side? How do you see the Amazon partnership building as a channel for you for your full service monitoring offerings? And what are the implications for SAC and RMR?

Great question, George. Thank you, and good evening. I’ve got maybe two or three comments to share with you about Amazon. We have a lot to cover today with limited time and we didn’t cover Amazon in the prepared remarks. And the short answer is that a lot has not changed from our last call on Amazon. We’re working with Amazon to refine the go-to-market strategy. They have been strong partners to us, but the full launch will be made when Amazon and ADT are ready, and we don’t yet have a date for that. We have a very high bar. As you would expect, this is life safety for us. And when our standards are met and fully tested, as well as Amazon’s, they also have a high bar, we’ll be ready to launch, but we’re not quite there yet. We do have a pilot in place, where we are testing and refining the technology and the capabilities and learn every single day. As a result of that process, we’ve got a team of engineers assigned. And as I said, we view this as some upside for us. It’s not built into our guide. And so any upside potential for us would be incremental to 2019 plan and the guide that we provided you.

Got it. That’s helpful. For my follow-up, on free cash flows, the midpoint of your free cash flow guidance for 2019 suggests a 11% year-over-year growth, which is the deceleration from growth that you’ve seen over the past two years. Can you talk about one-time items this year that may be weighing on your free cash flow outlook, assumptions around refinancing that may be included in guidance and any conservatism that you may be incorporating?

Yes. I’ll answer a couple of high-level comments, and then ask Jeff to weigh in. So I’d say, overall on guidance, we’re feeling very good that we’re targeting another year of improvement on every single market – on every single metric, revenue, cash flow, attrition, EBITDA. And on the free cash flow and the EBITDA, as you pointed out, we’ve got an investment identified at $40 million. And that investment will be allocated to DIY growing that market for us, which we think is a very significant opportunity growing the commercial space and investing in that business and then some brand investment to help with a brand refresh. We’re obviously targeting the high-end of our guidance ranges just like we did in 2018, and the guide for 2019 includes that $40 million of investment for the three areas that I mentioned. Jeff?

Yes. Hey, George, thanks for the question. I’d start just as a reminder as Jim has already mentioned and I mentioned as well is that, our objective is to balance cash generation with growth, with attrition, with revenue payback. The key driver of our cash flow is our EBITDA. So as I described in the prepared remarks, we have about $100 million of, what I called, the core growth. And then the headwinds is Canada underperformance as we talked about, it’s the investments Jim just mentioned. And then you might recall in the first quarter last year, we described some legal settlements in our 10-Q. So if you think about the EBITDA contribution to cash flow, that’s about two-thirds roughly of the cash flow year-on-year. There’s nothing else I’d really call out to your question as unusual in cash flow, the other big driver is interest expense, where we are – we have some pressure from our higher balance on the term loan and higher rates, which we expect will be offset by the recent refinancing activity I mentioned. And aside from that, there’s a handful of puts and takes, including some timing of marginally a little bit more infrastructure CapEx, but nothing else I’d call out everything else, kind of, including SAC, kind of nets to zero.

Thank you.

Hey, and I’d add George. So when you look back at our cash flow over the past few years, we’re very excited about the progress we’ve made driving cash flow between 2015 and today.

Got it. Thank you.

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

Hey, guys, good evening. The first question for me, just on the investment on new growth initiatives, how do you think about sort of the payback on those? And how quickly do you think, you – those investments will, particularly in the DIY space improve the trajectory of that business? And in commercial, I guess, just how much of it is incremental because of Red Hawk, so that now positions you to spend more money to really try to drive share, is there another – any other dynamic there? Any incremental color will be helpful?

You bet. Thanks, Gary. The – some of the investment is more tangible and some of it a bit less tangible. The marketing spend, as you would expect, is a little more difficult to allocate in ROI, too. The other spend DIY and commercial maybe a little bit easier. To give you a little more color on the commercial side, the investment is principally related to staffing, and the acquisition of talent and ramping up in markets where we have – where we’re optimistic about the market and don’t quite have the scale in terms of talent. And so we’re going to build that talent in the sales cycle is a little bit longer in commercial than it is obviously in high volume. And so that comes in as an investment in 2019. On the investment in DIY, we feel terrific about the platform that we bought in LifeShield. LifeShield right now has a – had a 2018 run rate of negative $10 million in EBITDA. And we expect via investing in that business that, that number will be higher and probably in the neighborhood of about half of that 40 will be allocated to DIY in 2019.

Great. Thanks. And then just one, Jeff, one for you. The free cash flow guidance in your slide deck here, it says, assumes the refinancing of the second-lien debt. Can you just give us some color on what you’re assuming there? You might have said something about interest expense, if you did, I didn’t catch that, so…?

Yes, we’re assuming around $30 million to $35 million benefit from refinancing to offset about $15 million – $10 million to $15 million of pressure from higher LIBOR-based borrowings. And as you also see in the release, we announced this morning that we have a call with our lenders to seek a consent to open up some avenues of flexibility to go pursue those financing activities.

Great. Thanks, guys.

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

Thank you. Good evening, gentlemen. I just wanted to ask firstly around your DIY strategy, specifically, why LifeShield, I mean, I guess, the small company, negative EBITDA. I mean, there are probably some other ones that are probably doing better. So just trying to understand what you’re trying to do with LifeShield? And why it wasn’t and how they established clearly that might have made sense?

You bet. Thanks for the question, Manav. I’ll give a little bit of context on DIY and then take a minute or two to talk about LifeShield specifically and then just a little color on our 2019 plans. I’ll start with context for the acquisition. We’re – we continue to be excited about the DIY customer. We’ve said a number of times that we view the DIY customer as discrete from the pro-installed customer and playing more assertively in the 80% of the market who do not have pro-installed security services today is largely the logic around heading into DIY. Not unlike commercial, it provides lower capital intensity growth for us. And we think that there are some scale opportunities within – even our core business that DIY affords us. For example, when looking at DIY through the lens of customer lifetime value, it becomes very attractive opportunity for us. LifeShield itself as part of all of our acquisitions, we very – we’re very much focused on the talents of the team. And the LifeShield team brought us just a terrific executive group of leaders. We like the product platform. It’s about 20,000 customers. Their growth was principally constrained, because the capital constrained as a standalone business, and we think the marriage of our brand with the LifeShield platform is a healthy way for us to attack this market. We don’t have a great deal to share on the go-to-market strategy. We’re taking a smart long-term approach in this B2C business. E-commerce will play a meaningful role, and we are in the process of working through our launch plan, testing into brand decisions. But we feel great about the team and the use of the platform when married to the ADT brand.

Okay, got it. And can you also just help me understand the 3G transition you talked about, like I guess, how – what’s the timing and how that impacts? And I guess, while you’re at it, is there something we should be thinking about what happens when 5G starts coming into the picture?

Yes. Let me – I’ll share some perspective on 3G, and then ask Don Young to share some perspective on 5G, and maybe a little bit of color on our new panel. So in terms of 3G, I’ll try to be brief. It’s – essentially, we were notified by AT&T last month, along with other customers that 3G spectrum would be sunset in 2022, so three years from now. We are assessing and we have been assessing the impact, but we’re doing it in the context of a broader customer upgrade strategy. And so we know that we have an opportunity to upgrade our legacy customers. We know that some number of these customers are going to attract. We’re working with our partners on cost offset and working together to develop that upgrade strategy. And so we’re really sort of waist deep in the assessment, but engaging – sort of engaging this process from the perspective of an upgrade strategy for us more than purely 3G. One additional comment that I’ll make on it, Manav, before asking Don to weigh in is, we see this sunset as an opportunity for our company. There’s some level of disruption in the marketplace as a result of it, with all the mom and pops that have 3G customers, even our traditional competitors. And so there is a aspect of the 3G sunset that we’re viewing as opportunistic for ADT. Don?

Yes. And Manav, this is Don. Yes, the opportunistic part comes really in two ways. Number one, our new Command and Control solution, which is the successor to Pulse, comes with basically an individual’s ability to swap out the radio themselves without having us roll a truck. Another feature set is remote diagnostics of the panel. We do over-the-air updates to that panel without having to roll a truck. There’s also a two-way encryption of the devices. There’s a lot of features and capabilities that come with that Command and Control solution that we think fits nicely into the upgrade strategy okay under the 3G announcement. Another thing, too, we announced just a few weeks ago, and that’s the FirstNet announcement, we’re – in which we’re going to be able to go ahead and actually swap out the 3G radios over the next three years to a FirstNet radio, which without probably getting too deep, provides us a very unique path using the FirstNet network into our call centers.

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

Great, thanks. Hey, just a real quick going back to LifeShield. It’s a mirror in your right, Jeff, there was a $10 million loss in 2018. So does it mean, is it fair to say there’ll be $30 million of loss in 2019 associated with that, if there’s a $10 million investment there?

Yes, Kevin, it’s about $10 million run rate. Most of their loss is associated with subscriber acquisition costs, everything LifeShield does is outright sale. So as we build that business and invest significant portion of that investment would be in marketing, advertising-related subscriber acquisition cost. And we still have to work through exactly how the accounting on that will work. But it’s fair to think of it as incremental investment to drive growth in that business, so a little bit of technology investment as well.

Got it. And then just, it sounds like just kind of trying to reconcile the EBITDA. The legal was $17 million. Did you say how much the Canada headwind was?

No, we didn’t. But you can think of it in a similar range, not quite the same amount.

Okay. So all in somewhere around $30 million, $35 million, is that a fair way to think about those two components?

Yes, somewhere in there, and we’re not going to routinely break out detailed line items by line items. But we thought it was worth mentioning, there’s a couple of things just in the context of our overall 2019 guidance.

Yes, but it seems like it’s about $75 million between those three items. Okay, cool. Thank you.

Our next question comes from the line of Toni Kaplan with Morgan Stanley. Please proceed with your question.

Thank you. Jim, how are you thinking about the levers that you need to pull to hit your 13% attrition guidance for 2019. Like, what could make you come in above or below guidance? And any thought – updated thoughts on the long-term attrition target?

You bet. Thanks for the question, Toni. We’re – I’d say, I’d characterize our – us as pleased with the attrition improvement of 40 bps year-over-year and even the 10 bps sequential, but not satisfied. And as you know, we’ve talked a number of times, the next 100 bps are going to be tougher than the last 300 bps. Our progress, I’d say, won’t always be linear. Q1 2018, for example, we had record retention levels, compared to last year. But we’re confident in our guide. We’re confident in improvement over time. There’s three or four areas that we’ll continue to focus on. I think, on the call last time, I shared some perspective on Canada, and that is a focus area for us. We’re more fully deploying data analytics, which is a focus area for us. I think, I’ve shared before the voice analytics capability that we have and using that tool to be more prescriptive about attacking attrition. And then although much of the low-hanging fruit is gone, all of the low-hanging fruit isn’t gone. And deploying our traditional playbook that you’re familiar with Toni variance performance management, managing save rates, capture rates, et cetera, still have some opportunity. So the takeaway on the attrition is, we’re confident in our guide. We’re shooting for improvement on the higher-end and continue to be optimistic about improving our attrition over time.

Perfect. And then I really appreciate the color on ADT Command and Control. Maybe could you elaborate on how the economics differ from Pulse? Is – are you expecting monthly revenue in margins to be higher SAC, lower, any sort of color there would be helpful? And just really quickly on, I saw the extra disclosure on subscribers on Slide 18, and wanted to know if that would be provided in the future on a quarterly basis or not? Thank you.

Yes. I’ll offer a couple of comments on Command and Control, and then ask Don to weigh in. At a high-level, we have a modest pickup in SAC on a unit basis. So it’s better technology, better aesthetics, better experience for the customer, but we will be paying less than what we were paying for our prior panel, and that’s built in – built into the guide. The launch for Command is national at the end of this month. And so we’re eager to pick up the upside of the – of that SAC improvement. In terms of the product itself, Don, do you want to weigh in a little bit?

Yes, sure. I appreciate the opportunity, Toni, to expand upon the answer I gave before. We’re obviously excited about this being a successor to Pulse. We’ve rolled this out to 6,000 homes already as part of a phased approach. We will go national, as Jim said, at the end of this month. As I mentioned before, the over-the-air updates, the remote diagnostics, significant enhancement to what we’ve already experienced so far. We have a broader range of sensors with a much larger range. We have a – we’ve written this actually – nothing I’m ready to forecast yet, but some efficient install experiences, as I mentioned, was we’re actually starting to see some improved in lower install times. But again, not ready to forecast the financial impact of that. The most important thing, I think, for our install workforce is, it’s a very easily upgradeable and modular design. So we want to add feature sets okay to the customer, some of them actually user created. Well, it’s very easy and cost effective for us to do it. We’ve gotten great feedback from our customers, great feedback from the field, and we’re really looking forward, like I said, roll out at the end of month.

Perfect, thanks.

And Toni, I think, I’ll answer briefly on the units question that you had. Essentially, at a high-level, our strategy the way that we run the business isn’t any different today. We’re focused on RMR over units, but we’re also trying to be responsive to the requests for some more detail. We’ve added enhanced unit disclosure. We shared more information about Red Hawk. There are some information in the materials that provide more color on ending 2018 versus 2017 in terms of business mix. Our objective is to be transparent on this. I’d expect at this stage of the game that we would share that level of detail on an annual basis.

Thank you.

And Toni, this is Jeff. I’d also add that, as we integrate Red Hawk and determine precisely how we’re going to run the business and integrate it with the rest of our commercial customer base, it’s also possible that we’ll either present things differently or adjust some of the measures as the year goes on. And at that point, we would share some additional information.

Make sense. Thanks, again.

Our next question comes from the line of Peter Christiansen with Citibank. Please proceed with your question.

Thank you for the questions and appreciate the added transparency. Thank you. Just a couple of questions here. Can you walk us through the the motivation for the DRIP buyback plan combination there? Is this really just a way to manage your cash flow or the timing of cash flows over time? I’m just trying to understand that a bit more. And then as we think about radio replacement cost going forward, is that still a special item, or should we now think of that more is embedded into the official free cash flow measure?

Hey, Peter, it’s Jeff. I’ll take a crack at the DRIP first. I start by saying, we’re really happy to add this to our capital structure. It’s a pretty basic DRIP, no discount or anything the Board approved it for two years. It gives all opportunity – or all investors, I’m sorry, the opportunity to receive the dividend stock instead of cash. Apollo, our largest shareholder has indicated their intent to take dividend in shares. So effectively, it’s going to be the same effect if Apollo is buying more shares. They have conveyed very high conviction in the business that we see it as a sign of confidence in us and in our plans. And then we also announced the share buyback, which is sized in such a way that it would offset over time assuming we executed at the authorized level. And it would offset the DRIP, such that the net effect on share count would be not materially changed. So we’re very pleased by the vote of confidence from our largest shareholder. And then your second question, I would tell you, we’re just too early to yet have assessed the manner by which we work our way through radio replacement cost. So we’ll share more as we get through the year, but have not yet determined. It’s a three-year program, so we’re in the early phases of building our plans to execute their bride strategy that Jim described.

Thanks.

And you can read a little bit more in our Form 10-K as well.

Great. Thank you.

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

Thank you. First question is Canada. Before ADT ever merged with Protectron up in Canada, it had been one of the weaker parts – performing parts of the company on the residential side. And since the acquisition, it has gotten a little bit better, but clearly not good enough. And I’m just wondering, I know you’ve spoken a little bit about this before and on other meetings. But is there – besides cultural issues, are there – is there branding or is there a type of marketing issue that may be different than what you see in the United States?

Thanks for the question, Jeff. is This is Jim, and I’ll provide a little bit of context to Canada, and then I’ll offer your – offer an answer to your question. The context is, Canada is about 5% of our total revenue. It produces positive free cash flow. As you well know, there’s some unique market dynamics. We’ve run the business historically semi-autonomously separate IT system, separate processes. And over the course of the first three years or so that we’ve been here, it hasn’t been on the top of the priority list for us. And as we continue to make progress in the U.S., we are shifting resources and attention to improving Canada. There’s some unique dynamics in the marketplace having to do with the merger of Protectron that you mentioned, various dealers in that marketplace. But overall, we are confident that the playbook that we’ve deployed in the U.S. will be successful in Canada and now it’s time to turn our attention there. One final comment that I’ll offer on Canada, and I think I may have mentioned this last time. We’ve hired a new leader in Canada. He’s off to a terrific start. He is an industry veteran, has turnaround experience. And we like his ideas for the business. We expect that we’ll see sales and service improvement in 2019, but we do expect a drag on revenue and EBITDA and that was contemplated in the guide.

Okay, great. My second – my follow-up question is about FirstNet. And what you’re doing, both from a marketing point of view and a technology point of view to get the word out as to what it means for ADT relative to the competition? I’m not trying to make this a softball question, but I want to throw this thing out to you, obviously, to Don, to – what – to talk about a little bit about what does ADT need to do to show that it’s a little bit different now that gets in – well, as it’s getting involved with FirstNet and AT&T, but also getting involved in some verification technologies that maybe some other companies have not yet sought to invest in, waiting for you guys to basically show it to them, whether it works or not?

Hey, Jeff, this is Don. I appreciate the question for sure. I think, it’s probably important or maybe worth pointing out what FirstNet is Jeff. I think, you and I are intimately familiar with it, but maybe others aren’t. Very quickly during Hurricane Katrina, all the congestion that was created in the cellular networks is what prevented the first responders from being contacted or contacting each other fast forward. And then the FirstNet agency was created within the federal government. Eventually, that agency partnered with AT&T to build this network. The easiest way to explain the purpose of the network is to provide that separate lane on the highway, of which only a certain people can travel. It happens to be public safety and now ADT as a result of the last 12 months, where we’ve worked really hard with AT&T to get this approval. To your point, Jeff, trying to market and advertise it, that literally has just begun, because we literally just signed the contract to commit to this with AT&T. An easy thing that we’re really looking forward to is at the moment that we’re talking to customer about their 3G radio upgrade to bring this value to them, to explain to them what the value of that lane on the highway will bring in terms of responsiveness. So – but yes, we still have plenty more to discuss, plenty more to figure out on how we’re going to incorporate that in our branding, in our brochure material, all of those things. So stay tuned, and we’ll be breaking out that kind of process soon.

Okay. Thank you very much.

Our next question comes from the line of Seth Weber with RBC Capital Markets. Please proceed with your question.

Hey, good evening, guys. I wanted to ask about Red Hawk. The – on the slide, you talked about some opportunities starting 2020, synergies, revenue and cost synergies. Is there anyway that you can help us sort of think about what your expectations are there relative to the, I guess, the, call it, the $300 million run rate? How we should be thinking about, maybe some cost synergies there in 2020?

Thanks for the question, Seth. Good evening. Let me give you a little bit of color on Red Hawk and provide some additional details. So we paid $370 million for Red Hawk. 2018 run rate was about $300 million of revenue, give or take about $30 million in EBITDA. We saw big strategic benefits here, fire products, scale and geographic reach, as I mentioned, with DIY and LifeShield, really talented strong leadership team. It’s an attractive profile for us, low attrition. It’s low capital intensity. EBITDA margins are a little bit lower, but returned to actually have a higher IRR. And so we are going to approach 2019 as an integration year. The overriding operating objective is going to be no customer disruption. There’s a moderate amount of investment in the IT platform. We’ll begin to execute on the synergies in late 2019, but the realization of those synergies will primarily be in 2020 and beyond.

Right. And just – is there a framework how – having done deals in the past? Is there sort of a – just a framework, a playbook on X percentage of synergies should be expected, or anything that we can kind of work with for 2020? Maybe it’s just too soon to say.

Seth, it’s Jeff. Nothing I would share in the way of specific guidance for 2020. We’re excited about the trajectory of our commercial portfolio, lots of opportunities there. But we’re not going to share any specific 2020 guidance just yet.

Okay. And then maybe if I could, as a follow-up, just ask – you mentioned a couple of times, I think, in the release about improvement in pricing. Maybe just give us some color on the pricing environment? And whether you’ve made any progress on the resi side getting more upfront pricing from customers? Thanks.

Yes. We have made some progress in pricing, a lot of it driven by mix. So when we talk about changes in average pricing, a lot of it is a transition of the subscriber base from more traditional to interactive Pulse, and we have what will soon to be Command and Control. So typically, those customers come on at a higher revenue per unit, so there’s a mix component to it. We also have a bit of escalation in our base. And then there’s changes that we are contemplating and piloting that seek to get more revenue at time of install. We’ve had some success in that during 2018 and think there’s more opportunity to collect more of the time of install in the future.

Okay, super. Thank you, guys. I appreciate it.

Thanks, Seth.

Our final question comes from the line of Ashish Sabadra with Deutsche Bank. Please proceed with your question.

Thanks for taking my question. So maybe just to follow up on the $40 million investment in 2019. How should we think about those investments going forward? Are these like one-time investment as you’ve acquired the DIY and Red Hawk, or are these going to be recurring going forward as well? Any color on that front?

I’ll offer a couple of comments, Ashish. Thanks for the question. And on DIY, the short answer is that, it’s really opportunistic. There are some investments in the business associated with the IT infrastructure. We think that there are some early investments in branding as part of our launch, but how much of it is recurring is very much in proportion to how successful we are in growing the DIY space. On commercial investment, I would view that as more or less one-time, and I tend to view the marketing more in the category of one-time. But DIY, which I mentioned earlier, represents probably half or more of the $40 million. That one is largely dependent on customer acquisition and the volume that we have in DIY.

And that’s helpful. And then maybe just a follow-up question on DIY would be, is there opportunity for cost synergies in the back-end going forward once you get scale in that business, where you could leverage the existing infrastructure, the monitoring infrastructure that ADT has and other opportunities for further cost synergies there?

Very minimal, Ashish. We were very modestly in the DIY space at ADT. LifeShield is a relatively small organization. And the play here for us is to grow that business and attack the DIY market, as we mentioned earlier, that the 80% of market that doesn’t have professional monitor, professional installed equipment. And so the play for us is really focused on the growth side more than the cost takeout.

Thanks. That’s very helpful. Thank you.

Thank you, Ashish.

We have reached the end of our question-and-answer session. And I would like to turn the call back over to management for closing remarks.

Oh, all right. Thank you, operator. I want to thank everyone for joining us on the call today. I’d like to conclude by expressing my appreciation to our many ADT colleagues and our dealer partners for all their efforts each and every day that made 2018 such a successful year. We’re looking forward to an extraordinary 2019, and thanks again for joining us. We look forward to updating you throughout the year. Have a good evening.

This concludes today’s teleconference. You may now disconnect your lines at this time. Thank you for your participation, and have a wonderful day.