Greetings, and welcome to ADT First Quarter 201 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief 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. Thank you. You may begin.

Good evening, everyone, and thank you for joining us for ADT's first quarter 2019 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 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 will make reference to non-GAAP financial measures. Our historical and forward-looking non-GAAP financial measures include 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 and on SEC website. 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 will now turn the call over to Jim.

Thank you Jason and welcome everyone to this evening's call. And I'm pleased to bring you update on our progress across a number of fronts. Let's start with our first quarter results, which included total revenue growth of 11% or 4% excluding the Red Hawk acquisition. The top-line growth was driven by increased residential interactive penetration and a higher associated average prices, improved trailing 12 month attrition and higher installation revenues in our existing commercial businesses, which further benefited from Red Hawk. Our adjusted EBITDA at $621 million was modestly improved year-over-year despite approximately $17 million of favorable legal settlements in the prior year's quarter, which we were able to offset with higher revenue and continued strong execution of on cost efficiencies. Our free cash flow before special items was also strong at $171 million, our best performance on this important measure since the first quarter of 2018. These results were driven by our focus on key operating metrics or KPIs, which during the first quarter continued to show year-over-year improvement. Our gross revenue attrition on a trailing 12 month basis was 13.3%, which consistent with our guidance for the year and in conjunction with our acquisition of LifeShield excludes the effect of attrition from existing and new DIY customers. This compares to 13.6% in the first quarter of last year. Including DIY customers, would have added six basis points to our attrition. While attrition improvement remained a key focus area for us, we did not make sequential progress during the first quarter, nor as much year-over-year progress as we would like due partially to tough comparison resulting from a strong prior year Q1 performance, which I mentioned on our last call. Attrition improvement will not always be linear and we expect improvement ahead as we continue to emphasize high-quality…

Thank you Jim and thanks everyone for joining our call today. During the next few minutes, I will share a little more perspective on our financial results and outlook, summarize our recent capital structure enhancements, highlight a couple other items and then we will open the call for Q&A. As Jim mentioned, our first quarter reflects a solid start the year with revenue growth of 11% or 4% excluding December acquisition of Red Hawk. We were able to grow EBITDA slightly despite approximately $17.5 million of favorable legal settlements in the prior year quarter and our free cash flow before special items continues to be robust at $171 million for the quarter. Our top-line performance included monitoring and services revenue growth of 5%, driven by combination of Red Hawk’s contribution along with higher average prices and better attrition. Installation and other revenue grew more than 70%, driven by our expanding commercial business. In addition to the contribution of Red Hawk and smaller tuck-in acquisitions, we also continue to see strong commercial growth on an organic basis. As Jim mentioned, our latest 12 month gross revenue attrition was 13.3%, exclusive of the DIY customers, this compares to 13.6% in the year ago figure driven by higher quality customer base and a strong focus on customer service. Our trailing 12 months revenue payback improved to 2.4 years due to higher installation revenue and our focus on efficient sales and installation spend as well as other productivity actions we have undertaken. Our net subscriber acquisition costs were up approximately $11 million or 3%, driven mainly by capitalized SAC due to an increase in dealer and bulk generated account purchases along with higher upgrades and add-ons volume and some increases in advertising expenditures. Our end of period RMR increased by $13 million to $349…

Great. Thank you. [Operator Instructions]. Our first question from George Tong from Goldman Sachs.

Good afternoon. Attrition improvement you had indicated will not always be linear, can you talk about the puts and takes that could affect the trajectory of attrition improvement this year, specifically?

Yes. George, thanks for the question. Last year on our earnings call, I think we talked about Q1, 2018 and it included best run ever on attrition and so on the one hand, it's important to acknowledge that our year-over-year comparisons is difficult, but no excuses, we would have liked to have see more progress in the first quarter. And to your question, progress won't always be linear, but we continue to be confident in our ability to drive improvement. Four or five factors that will influence that improvement, some of which we have mentioned on the calls in the past, data analytics, voice analytics. We still think there is some opportunities in our traditional playbook everything from variance performance management, improved save rates, the higher capture rate. We are optimistic about the progress in Canada and we think lastly that there is more opportunity to improve our overall service levels. We think that the service levels are markedly improved from the past, but they are not to the world-class levels that we think we can drive and as a result of that improved service level, we think that can round out additional improvements on the attrition front.

Got it. Very helpful. And as a follow-up, you had indicated you are planning to launch with Amazon in the second quarter, can you elaborate on what this launch will entail and how you expect the partnership to have an economic impact on the financial model?

You bet. I will show what I can about Amazon, we have a agreement with Amazon which such parameters is on precisely what we can share, but I will try to speak to your questions and provide some more color. I will start with just a moment reminding everyone that through and ehco device today we have had the integration with Alexa Voice for our customers that are in the home. Voice commands for the Pulse system have been in place since 2017. And now we are rolling out with our Command and Control system, additional use of echo via the Alexa Guard when the customer is out of the home. In terms of an update, our teams continue to work closely with Amazon engineers, we have extraordinarily high safety standards and security standards. We and Amazon share those high standards, we have been working to ensure that from a product perspective, this is locked down tight and we are at a stage where we have been trialing product with great customer feedback and we are at a stage George where we are looking forward to Q2 launch. We feel good about the launch, we haven’t shared specific economics, precisely what we think it can deliver but we feel good about the partnership, we remain uppy about the co-marketing and promotional opportunity working together with Amazon.

Got it thank you.

And George, to your specific question about how you see it in the financial model, ultimately it’s another sales and marketing channel for us. So it’s that and then it gives us that much more of a comprehensive offering to take to our customer base in constant with Amazon customer base.

Perfect very helpful thank you.

Our next question is from Manav Patnaik from Barclays. Please go ahead.

Yes. Thank you good evening guys. I just wanted to ask Jim maybe if you could walk us through how the pilot or the citizen’s financial is going like how that - how do you see that benefiting you guys just the mechanic stake, because it’s obviously has helped one of your competitors. So I was just curious when that can be beyond pilot and how that would impact you guys?

Yes you bet Manav, thanks and I will I will just offer a headline on the citizen’s pilot we are excited about it. I think we are in five markets we have just launched and the executive that is leading network is Jeff Likosar and he is probably in best position to answer your question. So I will ask Jeff to chime in.

Yes. thanks Manav. So with citizen the concept is to use a third-party financing source. We talked a little bit in the past about the fact that we have been evaluating changes to our offer or pricing structure for some time in response to consumer needs changing a bit, technology evolving with really two objectives. The one objective is to drive lower net subscriber acquisition cost and by collecting more revenue at the time of install. And then the second objective is to be able to sell a richer mix of stuff, more devices to the average customer that go beyond core security to automation and other ancillary kinds of devices without having the subsidize it. So what that really means is if we can collect more revenue at the time of install. We have been piloting a variety of way to do this during most of last year including some financing options that we financed ourselves using our own balance sheet. So what we recently did is in five pilot market plus Citizen into those markets so that way we are able to offer customers that meet the accretive requirements, a third-party financing source and it’s too early to draw a conclusions, because we are only a couple weeks into it, but we are very encouraged by the opportunity and what we seen so far, but net of this is lower subscriber acquisition costs over time by shifting to more of the installed cost to the consumer instead is subsidized by us.

Okay, got it. And then just may be broadly, I mean I understand the attrition improvement is linear, but is there kind of some sort of a target longer term range to think about where you could get to?

Yes. Helpful and the answer with specificity Manav. There have been times in the past where best-in-class organizations were in that 11% or 12% range. It's I would say highly dependent on mix national accounts as I think you know tends to have very low attrition rate, commercial tends to be a bit lower than residential, but at some stage again we would be targeting all those longer terms sort of best-in-class rates in that 11% to 12% range.

Alright. Thank you guys.

Our next question from Toni Kaplan from Morgan Stanley.

Thanks very much. Jim you mentioned that you are annualized different approach for the 3G conversion and I know you mentioned that you will share the results when you have them but, I just wanted to make it understood correctly, is that means that you couldn't adding some incremental expenses for that this year that is not included in the guidance? Is that fair or is that reading too much into that?

Tony I will give you a little bit of context on 3G and Jeff is listening things, please jump in here. So, in terms of the kinds of things that we are testing, we are really looking at 3G as a part of a broader upgrade strategy and we are testing I think in eight different markets handful of pricing alternatives, product alternatives, different packages to see what is most effective with resulting in conversion. Everything that we are doing so fat, Tony, has been value of their work. So, in other words, we will service this year something in the neighborhood of a little north of $2 million in customers and while we are doing service calls for existing customers, we think that is the opportune time to do a radio upgrade. So, the work-to-date has been as I said has been part of a broader upgrade strategy and imbedded in the service call process, testing different price point and product offerings to see what is most effective for us. Jeff, do you have anything to add?

I would just add. Our objective is to minimize the cost to us by getting certain of our customers to help to offset a portion of that cost and in some cases just by replacing radio, in other case by upgrading customers to a new system and because we are just out with this brand Command and Control system. It's early days testing receptivity to that as an upgrade offer and then it's early days testing the wall where anyway price that we might be able to charge a customer as part of upgrading just the radio. And, as I said in my prepared remarks, we did not build any cost associating with that into our 2019 guidance it’s possible there will be some in 2019 we have three years to work our way through this and as we digest the results from these pilots we will share more on our next call.

Okay that is helpful. And then my second question just given the China tariffs are in the news again, can you remind us what kind of risk you see there like basically what percent of your cost come from suppliers that might ultimately source their products from China just what is the sort of exposure to that? Thank you.

Sure Toni you the exposure we have worked in a more or less continuous space is with our procurement group exposure as a result of the tariffs are diminish for us.

Thank you.

The next question is from Jeffrey Kessler from Imperial Capital. Please go ahead.

Can you go through a little bit more on the Citizen’s sorry - on the Citizen’s action because right now I have got assistant probably asking these action questions to your competitor who is having their conference call at the same time here. It appears that they have been able to already do the things that you are trying to do, is there something that is different about what types of tweaks and what types of differences do you think you would have? And not necessarily your competitor, but then - other companies been doing what you are doing with this. And also are you talking to Citizen’s about what the potential exposure that they have to would be in terms of attrition and things like that as you get more and more into the weeds overtime where if we can touch to how many customers are trading who would have been financed by Citizens?

Yes thanks Jeff, I will share a couple of more comments. So I mentioned earlier that our main motivation here is reducing the cost and taking on new subscribers reducing the cash out of pocket. We also seeing option to upgrade more customers either at the time of initial sale, selling in more visits as I described ago, but also over the life of that customer. So at the end of the customer’s contract for example you are having access to a credit line, we are encouraged that over customer life time will lead to more upgrade opportunities. We are also encouraged by the attrition characteristics of customers who use third- party financing for a couple of reasons, one is they have a relationship with a bank that we think is likely to reduce on-payment behavior in some cases. And in secondly because expect we can sell those customers more components to their system and they will interact with the system and use the system more, which is also associated with improved attrition. As for the differences between us and our competitors, I'm not going to comment. And of course Citizen’s is limited in the information that they share with this, but I would say that some structural differences between us and other participants you know A, is we have a larger existing customer base than anyone else. You consequently B, we have certain customers who are reinstating equipment or using equipment already in the homes that lead to some slightly different characteristics and in relative to other participants in the industry we have more customers who are taking on as part of relocation process. Those are all opportunities with Citizens as well, but just responding to your question, as far some things that are different I would say those are somewhat different compared to other players in the industry.

Okay. I gave got about 10 questions for Don, but since I’m not going to ask him now, I will just, let me get to one other thing and that is you mentioned above with regard to I guess attrition and the just general financial results, three words, progress in Canada. I have not heard the phrase, progress in Canada since this Company was sold to Tyco in 1997. What is going on in Canada right now that gives you the confidence that good things are actually finally happening in Canada?

Jeff, its Jim. I will give it a shot at answer your question, progress in Canada. So, a little bit of recap for those on the call, Canada represents about 5% of our revenues, over the course of last two, three years we have had relatively less focus on Canada compared to the United States. We are confident that the playbook that we have deployed in the U.S. will be successful in Canada. We have installed a new leader in Canada with turnaround experience and the team is off to a good start. We know that Canada will be drag on our EBITDA for 2019 on a year-over-year basis, but from the early signs on attrition, early signs on mitigating the EBITDA headwind, focus on positioning the business for a turnaround, there is some good progress that has been made in Canada and I would say we are bullish Jeff that that progress will continue.

Okay. Thank you very much. I appreciate it.

Thank you.

Our next question is from Kevin McVeigh from Credit Suisse. Please go ahead.

Great. Thank you. Any thoughts as to which of the Q1 upside in EBITDA - obviously nice result was a less loss than kind of DIY or just better fundamentals, just any thoughts around that?

Yes. I would tell you, Kevin, the key drivers of EBITDA are the drop through of revenue of course and we did a nice job in the quarter, relative to our internal plan just executing on spend across the Company. Really across most functions of the Company, no one specific thing I would call out but across the board, we execute well from a cost perspective. So, it’s a revenue drop through them cost execution.

Got it. And then just within the context so we are clear, you don't have any Amazon benefit in the 2019 guidance. So anything so saw would be incremental, is that fair?

It's fair. I think we have a very small lead flow that is built in Kevin but it's a modest number and any meaningful pick up for Amazon would be an upside. So, I think it's fair answer your question, we view it as a call option its upside for us.

Cool. And then just real quick, on the attrition improvement Jim, 30 bps, is there a way to think about the split how much was credit versus operational or is it just all kind of operational improvements that reduced it, just any thoughts around that

Year-over-year the 30 bps improvement, I would say at this stage Kevin is principally - the tailwind that we have on attrition at this point is principally through service improvements much of the credit tracking has sort of worked its way through the system. The exception to that I would say would be Canada, where it’s maybe a little bit more of an even mix between the two form an attribution perspective, but I would say at this stage of the game we are starting to see more of an impact on the service side than the credit checking and the smart growth that we implemented a couple of years ago.

Super. Thank you.

Our next question is from Gary Bisbee from Bank of America Merrill Lynch.

Hey guys good evening. So I guess first question on the commercial business you got to slide here showing a bit more detail and how should we think about the growth perspectives overtime there. Is 8% organic revenue growth in the quarter in commercial, is that a reasonable run rate assumption of what you think you can deliver overtime?

Yes we want our commercial growth strategy to continue to include bolt on type acquisitions along with organic growth. We expect commercial to grow more quickly in our residential business, we haven’t guided to a particular growth number, but when you look at what we have said for the full-year guidance, we would expect that commercial to be on the higher end of that range or even above the total Company’s full-year guidance range in residential to be on the lower end. So we are really excited about 8% organic growth in addition to the inorganic growth you see.

Yes and just to layer on a little bit on Gary, it’s super optimistic about commercial. The revenue number, the organic revenue number that we put on the board in the first quarter, we feel good about, but not unimportantly the backlog is very strong as well. And so the pipeline continues to grow, the opportunity to take share is based on service and that is right in our wheel house and so I would say as we are here in early May we are incredibly optimistic about the commercial business.

Okay thanks and then but for the Command and Control offering, how does that from both pricing and for you cost perspective compared to the Pulse system and even more broadly your sort of legacy offerings, are you getting more revenue and is there any discernible difference in cost structure thanks.

So Gary this is Don. Yes thanks for that question. So we are seeing a little bit of revenue uplift and so [indiscernible] than forecast or measures going forward, but on average I'm hard, so a little bit more than what you have seen with Pulse. From the cost standpoint it’s early, so we are obviously having with that - on the sales side we are at 90% adoption which is really an incredible number to hit this early in the game. And on the inflow side, we are actually have a high 80% range for installing the same system and that as actually sold. So another number that compares very favorably to what we attempted to do in 2014 when we rolled out predecessor to the Command channel calls [Tres (Ph). As far as the installation timing, that is also partially and fairly really impressive. It was about four months for us to kind of general stride with the GS costs for in selling, we already at that strides and month one was a Command and Control. So, a lot to learn and a lot to share with what our possible level out to, but right now we are really excited about what it was like out of the game.

And one thing I would add that we are encouraged by as well that ties into what I was describing on pricing is that, it's a better product and because it's a better product, customers are more excited by it and we are encouraged by early signs of the potential to sell the customers more components that goes with it, which we think long-term have the opportunity to drive better customer retention over time too, because again the more the customers use the systems, and more likely they are too stick with it. So it's is very early, but we are very excited and encouraged by the initial response.

Thank you.

Our next question is from Peter Christiansen from Citi. Please go ahead.

Hey guys. This is [Andrew] (Ph) on for Pete. How are you?

Good Andrew.

Hey. So, just wanted to ask you about the growth in revenues, I mean even ex-Red Hawk saw a nice acceleration in that growth, could you guys just give some more color as to what is really driving that?

Yes, well for us our revenue is a combination as you know of monitoring and service revenue and install revenue and obviously installed revenue is what is driving the growth rate off of a smaller base and the key driver there is the acquisitions that you already described, especially Red Hawk within the strong organic growth we were talked about just a couple of moments ago. On the monitoring service side, the key to growing monitoring service, is the quantity of customers we have and the price of those customers on average as you know, we focus mainly on RMR so it's really the recurring monthly revenue base and the driver there is the improved attrition that we have talked about, the along with increases in higher average pricing. And the increase in pricing, largely attributable to shifting the mix towards service levels that include more components, more service with the service levels, more video, more automation, which again is tied into the transition towards the larger percent for customer base having automated type services. So, we feel good about where we are on the top-line overall.

Okay. That is helpful. And with regards to LifeShield, obviously that a full quarter with that acquisition, is there anything that kind of stands out more now than you did prior and are you still planning for that around 20 million in investment throughout the year.

I'm not sure what stands out materially different than what we knew a couple of months. I would say that the team is outstanding. We continue to be incredibly excited about this opportunity as you likely know, this is we are going after the 80% of the market don't have our pro-installed customer . As we redirect leads either for customers that are out of our footprint or who don't meet our credit standards, the recycling of those leads is proving to be an opportunity with LifeShield. We have launched e-commerce, we are testing into brand and marketing decisions and especially through the length of our customer lifetime value we continue to be bullish about the DIY market. In terms of specific things we know today that we didn’t knew before, I have probably been in the realm of marketing insights or brand insights that we are testing, but probably wouldn’t have detail that we would share on the call on that front.

I appreciate the color. Thanks guys.

Thank you.

Our next question is from Seth Weber from RBC Capital Markets. Please go ahead.

Hey, good afternoon guys. I was intrigued to hear about the cross selling between the fire and the security business, I mean is there any more color you can give us there how aggressively you are pushing that, do you have special sales guys kind of going after those types of accounts or how big do you think that opportunity could be for you? Thanks.

Seth I will offer a couple of comments and then ask Don to way in as well. At a high level the answer is yes we are going after this market hard. The win that we had on the 1400 store customer was a takeover, it was a revenue synergy that would not have occurred, had we not had Red Hawk and fire products as another arrow in our quibbler. They are not necessarily specialized sales folks, but they are commercial sales reps who are ultimately familiar with fire that are going after this market. The biggest opportunity for us tends to be in our national account business where we will go after this cross sell opportunity. Don if you had anything to add?

Yes. Everything that Jim has said Seth, but also the engineering province that we have gained with Red Hawk acquisition was really an important to plug the necessary whole. For us to get see it the table with the decision makers that some of these customer and core locations and national accounts players going down the fairway with that opportunity for us.

Super that is helpful thanks and then just as follow-up, I think I heard you talk about the $40 million of incremental cost that you guys called out last quarter, I think you said first quarter was a little bit light and its going to ramp here for the rest of the year, is that a fair - did I hear that correctly, is there any way we should think about the cadence of that $40 million relative 2Q through 4Q versus the first quarter. Thanks.

Yes I think it is fair to conclude that Seth. The investments is principally in the DIY space and that represents give or take about $25 million of the $40 million and the more significant spend will come in the back half of the year. When we are focused on a brand launch and more sort of marketing right. Now much of the volume is coming into LifeShield is through the recycle leads that I mentioned earlier and when we start to marketing spend later in the year in addition to the new brand that we have for LifeShield that is where we will see some more of that spend. So it’s a definitely weighted towards the second half of the year.

Perfect. Thanks very much guys.

Thank you.

Thank you. This concludes the question-and-answer session. I will turn the floor back to Mr. DeVries for any closing comments.

Thank you operator and I also want to thank everyone for being with us on today's call. As always, I'm deeply appreciative of the dedication and ongoing efforts of our many ADT colleagues and our dealer partner who continue to drive our ongoing growth and our platform and ultimately our success with millions of ADT customers. We are making great progress in 2019. We are excited about the many growth drivers we see for our business. Thanks again for being on call. We look forward to updating you in near future and we wish everyone a good evening. Thank you.

This concludes today's conference. You may disconnect your lines at this time. thank you again for your participation.