Thank you for staying by. My name is Rebecca, and I will be your conference operator today. At this time, I would like to welcome everyone to the ADT Fourth Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Elizabeth Landers with ADT Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. We appreciate you joining today's call to discuss ADT's fourth quarter and full year 2024 results. Speaking on today's call will be ADT's Chairman, President and CEO, Jim DeVries, and our Chief Financial Officer, Jeff Likosar. Following the prepared remarks, we'll have time for analyst questions. Earlier this morning, we issued a press release and slide presentation summarizing our financial results. These materials are available on our website at investor.adt.com. As a reminder, financials and metrics for current and historical periods discussed on this call will be for continuing operations except for non-GAAP cash flow measures, which include amounts related to the commercial business through the date of sale and solar through the second quarter of 2024. Today's remarks also include forward-looking statements that represent our beliefs or expectations about future events. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. Some of the factors that may cause differences are detailed in our SEC filings. We will also discuss non-GAAP financial measures on the call. The most directly comparable GAAP measures along with a reconciliation to these measures can be found in our earnings presentation on the ADT Investor Relations website. And with that, I'm happy to turn the call over to Jim.

Good morning, everyone, and thank you for joining us today to discuss ADT's fourth quarter and full year results as well as our strategic progress during 2024 and our outlook for 2025. Jeff will provide more detail later, but as we shared in our earnings release, ADT delivered very strong top and bottom line results for the fourth quarter and the full year 2024 consistent with our objectives. I especially want to highlight our record high recurring monthly revenue balance, our record customer retention, and our very strong cash generation. For the full year, our total revenue was $4.9 billion, up 5%. We generated adjusted net income from continuing operations of $685 million, or $0.75 per diluted share, an increase of 25%. Our adjusted free cash flow, including interest rate swaps, was up 42% to $744 million. As a reminder, following the wind down of our solar operation in 2024, ADT is now completely focused on our core security and smart home business. This market is large and growing to what analysts project at $23 billion in consumer spending within four years. We're also excited at the incremental opportunity in the close adjacencies of standalone devices and aging in place within residential as well as growing our footprint in small business. I'm pleased with our overall 2024 progress and momentum during the year in which we also celebrated our 150th anniversary. At our core, we remain centered on delivering safe, smart, and sustainable solutions to our customers. We will continue to anchor our strategy in three areas: innovative offerings, unrivaled safety, and a premium best-in-class customer service experience. A key component of our strategy has been investing in our product and experience ecosystem to create innovative offerings for our customers. To this end, during 2024, we accomplished a very significant…

Thanks, Jim, and thank you everyone for joining our call today. I'll take the next few minutes to share some additional detail on our 2024 financial results and then turn to our 2025 guidance. I'm very pleased with our overall 2024 financial results, especially our continued strong cash flow growth. In the fourth quarter, we delivered $224 million in adjusted free cash flow, including interest rate swaps, and $744 million for the full year, an increase of 42% over 2023. This outcome is the result of continued revenue growth, operational efficiency, and overall cost and capital structure improvements. Another key highlight for 2024 was our 25% growth in adjusted earnings per share to $0.75 on adjusted net income from continuing operations of $685 million. Total revenue was $1.3 billion for the fourth quarter and $4.9 billion for the full year, up 5%. Monitoring and services revenue grew 3% for the year, driven primarily by a record RMR balance, which benefited from higher average pricing and strong customer retention. We generated 836,000 gross customer additions and $49.7 million of new RMR additions for the full year. Installation revenue for the year was $605 million, up $131 million or 28%. Outright sales revenue was up 50% for the year and more than doubled in the fourth quarter compared to the prior year. The key driver here is that for new subscriber additions on our ADT Plus platform, the customer acquires ownership of the relevant equipment. This is a transition from our historic model under which ADT retained ownership of most equipment installed in customers' homes. Amortization of deferred subscriber acquisition revenue from installations under our company-owned model was also up by 15% for the full year. Installation revenue per unit remained strong at approximately $1,300, as the trend towards larger system sizes…

At this time, I would like to remind everyone, in order to ask a question, press star one on your telephone keypad. Your first question comes from the line of George Tong with Goldman Sachs.

Hi. This is Alex Lacher on for George Tong. ADT completed a sizable bulk account purchase in Q3 from the same seller. Does ADT plan on acquiring more bulk accounts from this seller or another in 2025?

Sure, Alex. This is Jim. Thanks for the question. I'll address the bulk question and look to Jeff to chime in on capital allocation. So a little bit of color on the bulk. In 2024, we executed bulk deals for about 49,000 accounts. We did not do bulk deals in Q4. We have opportunities available to us with some consistency. We won't chase these transactions, but when the economics work for us, we'll definitely pursue them. Right now, we're exploring alternatives with two or three parties, including the organization that we acquired bulk from last year. I'd offer the returns for bulk are generally consistent with our dealer business. I think we'll continue to have opportunities to explore bulk additions. We've done them, I think, five out of the last six years. And we'll continue to look at capital allocation, make capital decisions comparing bulk opportunities, dealer, and incremental subscriber ads in our direct business. Jeff, you wanna take capital?

Yeah. I'll add a little more on capital allocation. So consistent with what we've said the last several calls, we feel really good about the progress we've made the last couple of years. A whole lot more flexibility. Your net debt's below $7.5 billion. It was more than $10 billion not long ago. Leverage below three, our cost of debt around 4.5%. Maturities well stacked. All the transactions I've noted in the prepared remarks. So three broad priorities: continuing to invest in the business consistent with a variety of avenues including what Jim just described. You're targeting strong returns. We'll remain disciplined and won't chase, but we'll deploy capital there. We'll continue to strengthen the balance sheet, including additional incremental debt reduction, but again, because we're below three, we feel less beholden to debt reduction because of the strength of our current capital structure. And then the third area is returning capital to shareholders. So we increased our quarterly dividend meaningfully last year. We consumed almost all of our $350 million share repurchase authorization last year and, with confidence, announced an incremental $500 million share repurchase authorization, which we intend to deploy during the course of the year. Just another order beyond what Jim noted that we think the stock's very attractively valued. We added a page to the IR deck. I think it's page sixteen. Just but with our $4.3 billion annuity-like base plus our growth prospects, plus our focus on efficiency, our consistent cash growth, and our commitment to return capital to shareholders, we think share repurchases is a good use of capital.

Got it. Thank you. And can you elaborate on the State Farm partnership? And how Q4 came in from a sales perspective relative to prior quarters?

Sure, Alex. It's Jim. So we continue to chip away on regulatory and compliance work. A great deal has been accomplished. The teams are working together consistently. We're now in four more states for a total of seventeen states. That represents something in the neighborhood of 45% of State Farm policies in force. We just did some trials using DIY in two states and water leak detection, kind of a leak detection-centric product in two additional states. The total sales for us through State Farm in 2024 was 18,000. That compares to 5,500 in 2023. Customer satisfaction is holding very high. And the working teams right now are meeting to finalize plans for the remainder of 2025, including state expansion.

Very helpful. Thank you.

Your next question comes from the line of Ronan Kennedy with Barclays.

Hi. Good morning. This is Ronan Kennedy for Manav. Thank you for taking my questions. I just ask you to expand on the progress and initiatives around optimizing the sales process to go to market and the refinement of the offer structure and the bundling and pricing. Progress there and the expectations for that in 2025.

Yeah. Sure. Thanks for the question. It's Jeff. I would highlight that we launched this new offer structure or the new set of offers, I should say, first last year on the ADT Plus platform. There's a variety of changes at the same time. So it's a new app. It's a new set of equipment. And more use cases available for customers. So concurrent with that, we offered our customers new choices, bundled things in somewhat different ways with respect to the equipment versus the services, warranty, and other kinds of features. And the reason that we make the comment about optimization is because we rolled this out to first select geographies, then all geographies, and as Jim noted, we're continuing to expand to different kinds of customers. And as we build experience, we're learning how to adjust the so-called knobs and dials to find the right kind of offer to put in front of the right kind of customer in the right channel. In some cases, even the right balance between installation prices versus recurring revenue prices, in some cases, how and when and if we make financing alternatives available to the customer. So the reason we make the point is just because it's new, we believe there's significant opportunity to make adjustments to optimize the outcomes, both economic outcomes and take rates and volumes, as we work our way through 2025.

Oh, and one quick addition, Ronan. It's Jim here. You mentioned sales motion. We've got a terrific sales leadership team in the field, and we're making, I'd say, really good progress in our ground game. We're refining territory management, we're leaning a little more aggressively into resales. You're familiar, Ronan, with our tech engineer model. We can continue to leverage our tech engineer model, and conversion is continuing to improve. So there's, as Jeff said, lots of knobs and dials at the intersection of sales and marketing, pricing and bundling, etcetera, but feel real good about 2025.

Thank you very much. And then can I ask you to please talk about progress made on the digitization and AI front in terms of the virtual service, the call center efficiency, I think even some opportunity was in propensity analytics as you scale up IT in that regard?

Sure. So I'll do virtual first and AI second. On the virtual front, we're actually now over three million customers served all time for virtual. Just over a million, I think, million, two hundred and fifty thousand or so of those were in 2024. More than fifty percent of our jobs created are now addressed virtually versus a truck role. The customer satisfaction is actually a tech hire for virtual than truck rolls. It's going exceptionally well. And we're holding at that fifty percent holding at that fifty percent of jobs created even though the number of jobs, the kinds of jobs that we're addressing is being expanded. So that's a fantastic win for us. We're just beginning to look at some AI applications in the virtual arena, but it's early in the game. And then, your second question about AI overall, as you know, we're starting with customer experience, customer service, is our first foray, leveraging artificial intelligence. We've partnered with who we think are a couple of the best industry providers to enable our customers and our employees with some of the best AI tools. We in customer experience, started with chat and fifty percent of our customer service chats are now being processed by AI agents. That'll be ninety percent by the end of Q1. And we'll be beginning to roll out AI agents for voice this quarter, and expect to have something in the arena of twenty percent of our voice calls contained by AI agents by the end of the year. Thanks for the question, Ronan.

Thank you. Appreciate it.

Your next question comes from the line of Ashish Sabadra with RBC Capital Markets.

Hi. Good morning. This is David Page on for Ashish. I wanted to ask about some of the incremental opportunities. You mentioned small to medium-sized businesses as an opportunity. So if you could just give an overview on what you see the opportunity there, and then an overview and just incremental opportunities overall. Thank you.

Sure, David. Thanks for the question. Yeah. SMB for us has been a business that we have been in for a long time. It represents something in the neighborhood of five hundred thousand of our 6.4 million customers. And we have, I think, renewed our efforts to go after this market. We have a new leader assigned to the area. We're looking at new product and functionality to make our offering more contemporary. The business has been performing well for us both from a SAC efficiency perspective and from a customer retention perspective. And we think can be an important incremental growth opportunity for us. So in 2025, it will be something that we lean into more assertively.

And I would add to building on Ronan's question about optimization is as we're out with our new offering set for some but not all of our customer base. The other area there where we're optimizing is example for relocating customers we have some capability to enable new customers to avail themselves of some of the features on the new platform without having to replace all the equipment. And then we are beginning to learn and we'll learn over time about more segments of customers who might be especially attracted, for example, to pets or, for example, to older relatives with features that could help them age in place, and we will prioritize our participation in these adjacent spaces. You're slightly separate from specific areas of small and medium business, but the point we're trying to convey is that we believe we have meaningful opportunities with our increasingly flexible offering set to target different kinds of customers who might have slightly different needs than our story customers.

Oh, great. That's helpful. Thank you. And just on a follow-up on the aging in place, is it possible to comment on just the general health of the US residential market, the health of the US consumer, and just in terms of new installs? Anything in that regard. Thank you.

So generally, from a macro perspective, David, the thing that influences our business the most is the number of relocations. And that cuts both ways. When relocations are down, it tends to be a tailwind for us from a customer attrition perspective, customer retention perspective. But it is a bit of a headwind when it comes to new ads because of the opportunity to acquire new customers upon relocation. Your comment about new builds, that it tends to be a small-ish percentage of our new ads. I'm going to say six, seven percent approximately of our ads are in the new builds category. And so that isn't meaningfully tied to our six. In terms of aging in place, last comment here, we've got a health business today. It's a small-ish part of our portfolio, but we think that there's some opportunity in that adjacency around aging in place, especially with the demographic tailwinds behind us. So, another what we see as an interesting call option.

Thank you so much.

Your final question comes from the line of Peter Christiansen with Citigroup.

Good morning. Other question. Jim, or Jeff, I was just curious. How should we think about subscriber asset spending? On a normalized basis, does that, at least on a year-over-year looking at year-over-year, does that start declining? I mean, I guess the app's been also tariffs and other costs issues there. Just curious.

Hey. Thanks for the question, Pete. I'll maybe I'll just share a little bit of context of our guidance overall. So and we feel really good about our continued progress. You know, we shared the guidance in the prepared remarks and in some of the accompanying materials. I would say the key drivers in our business of the EBITDA first and foremost, is our growth in monitoring services revenue. It comes at a high margin. We continue to drive significant operating efficiencies, cost controls. You know, we do have, as I noted in our EBITDA, some non-cash headwinds. Included among those headwinds that affect the EBITDA rate a little bit is the transition to more installation revenue that's because of the incremental outright sales. So then to your question, when I go to cash, you know, cash is unaffected definitionally by the non-cash items and our adjusted free cash flow guidance where we are counting on continued SAC efficiency that, you know, helps offset pressures in a couple areas. Maybe the most noteworthy I would call out is our transition to become a cash taxpayer. So, you know, we are planning on continued progress in SAC efficiency that's related to a number of the things that we've described, including ADT Plus, the opportunity to get more install revenue, but it's really everything. Equipment cost, production opportunities, labor cost opportunities, sales and marketing efficiency, and, you know, that kind of all goes into the overall scenario and we feel really good about being able to guide to another meaningful cash flow increase on top of last year's 42%.

Thanks, Jeff. And then, Jim, I'm curious. You know, I think about how Pulse was rolled out many years ago. And now with the new system as the new system set up, does and the corresponding platform and services that go behind that to serve, you know, two operating systems in a way at the same time. Does it make sense to be more aggressive perhaps later on in upgrading existing individuals on the new platform versus kind of like what the rollout was with Pulse years ago?

I would say absolutely. You know, to the extent that we're able to standardize, that's beneficial for us. From a service perspective, our organization is incredibly equipped to support a number of different panels and a number of different hardware ecosystems because we've been doing it for so many years. I think this is something you're familiar with actually, Pete, that our average tenure of our service tech is ten years. And so we're pretty good at hitting any pitch that comes our way. But in terms of upgrading existing cost plus ecosystem, I take your point in its absolutely advantageous to us. We're working with some of our manufacturing partners now on solutions on how to do that cost-effectively and feel pretty good, cautiously optimistic that we're going to get to a point where we'll be able to make those upgrades happen. Thanks for the question, Pete.

Hey. And Pete, one other thing I'll ask Pete, I just want to add one other thing on our overall guidance is our guidance contemplates tariffs. We didn't address it explicitly in our prepared remarks. I expect we will get that question from individual investors. You're evaluating this situation just like everybody else. We reviewed all of our contracts who would seek to mitigate any effects, our high margins insulate us a little bit, you know, with respect to the effect it has on our bottom line. But significant tariffs would put pressure on our business, of course, but the magnitude would be within the guidance ranges that we've laid out. And I just share that because I expect it will come up, we'll be on some investors' minds.

Absolutely. Good point. Thank you, Jeff.

I would now like to turn the call over to Jim DeVries for closing remarks.

Thank you, Rebecca. And thanks everyone for taking the time to join us today. We closed the year strong and feel very good about the momentum in the business. We're confident in our plans for 2025. One more time, I'd like to extend my appreciation to our ADT employees and dealer partners. Congratulations on an excellent quarter and an outstanding 150th year. Thanks everyone again, and have a great day.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.