ADT - Earnings call transcript Q3 2018

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Operator

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. ahead. go Please

Jason Smith

presentation Good us operator. call. and you website and thank afternoon, are results, Thank on available ADT’s afternoon, third joining our slide release press on issued investor.adt.com. conference our quarter for quarterly we both you, at a everyone, on XXXX This earnings

actual others, Reform materially forward-looking to we’ve These all this to we disclaim the XXXX. forward-looking those matters are subject SEC. include, will of statements our Our update the implied forward-looking of among of with afternoon remarks include by today call and differ these the statements. that Act meaning note as that that results of forward-looking could press this release expressed date obligation issued Please or These cause filings any speak risks in within from statements statements. Private to Securities Litigation our forward-looking and such statements risks only described the

non-GAAP we’ll make During measures. financial reference today’s call, to

Our measures exclude uncertainties. which mainly predict items, forward-looking non-GAAP to dependent future financial are and upon difficult special

website which to available For to our financial of of reconciliation presentation, historical GAAP a investor.adt.com. at and press non-GAAP afternoon both release measures, our please our issued complete on this slide refer are

are Joining turn Jeff Likosar. and the Jim. me I’ll call on DeVries; call Jim our now today’s President, our CFO, over to

Jim DeVries

items driven made total in in strategic I’m revenue adjusted we and we penetration, key special everyone know free about flow EBITDA This performance our compared $XXX generated financial importantly, prior, billion outlook. our flow. grew of million year-to-date the afternoon profitable share closely is and progress by which to that free and include and We speak with the share strong X% quarter, momentum our year this result accounts. our to Jason. customer new we strong signing retention EBITDA be residential results, across $X.XXX to improvement in in XX%. growth new before you, $XXX to we’ve Pulse metrics overall direct and metrics about generated with pleasure I’d customer million, multi-site quarter of revenue, acquire to grew the We a the of all $XXX the to Thank significant to on a continued the including success. few It’s X% adjusted financial cash to efficiency retention commercial million measures, quarter cash financial pleased These third growth increase a both. like and favorable focus tied team’s during we comments most customers. and an

During basis the improved versus to service trailing to quarter’s our attrition XX.X%, gross and XX-month a third ago by a our improvement level. selection This providing on focus XX XX.X% customers. compares reflects our quarter, on customer high-quality year last to revenue customer that also basis points and favorably we quality

year period. and to installation to Turning or SAC. in granular on in versus improvement is the to XX-month year-over-year due On X.X payback cost, improve this were a customer years X.X efficiency we increased prior trailing greater a revenue optimization, installation to Due able our continued revenue net costs. basis our years selling and subscriber to basis, acquisition

security revenue ADT experience. is As point savings. payback of home a interactive offering we’ve improvement $XX cash already annualized a of provider, million mentioned, every in home to X/XX in fully equates approximately leading

color security or on developments. doors while like our well-known it’s and whether recent strong financial commercial to they’re brand, outside us, to two home. further into share space open continue extending the position best their individual the our to I’d Our expanding capabilities for more

the capabilities expanding to Scheduled free With our fact, by acquire expected platform, represent pillar a through strategy to reach only our the safety independent and the of in close the flow synergies end Hawk customers the and one still security a is fire, life cash as business expect opportunities commercial, an announced of an our Hawk. of is year, in services enhanced This as customer and a commercial acquisition of key broader our X/X acquisition is recently will portfolio, boost Hawk, growth nationwide. Red significantly revenues. agreement players meaningful we we to is, about by product which geographic be First, Red accretive well. Red largest standing. deeper leader and will total

We’re and especially Red talent Hawk. about leadership at excited the exceptional

into security with marketing Secondly, new in opportunities and footprint By enhance the automation Pulse extends integration feature with audio ADT home customers us. relationship detection Amazon, space helping they’re we September, of our be our and expansion home. for announced security which system, away the new Guard our of from opens and supporting Amazon’s their when the an exciting security we’ll sales Alexa via upcoming

will the existing through for command Amazon to customers, to new or provide sales working marketing Amazon and Our of later offering services website the Pulse also an need These smartphone, to step monitoring installation system which monitoring forward offers smart their we’re smart glass. and and can customer’s the ADT will directly and professional we’ll is directly with echo simple with monoxide called, promotions year, alerts and new new and for to customers Amazon ADT breaking be This app. solutions, a state coordination, any then alarms, sounds creates home. are customers Alexa offered In in professionals. ADT also devices evolution also alarms them of only delivered opportunities the our us. carbon such and choose to and notify mobile smart this to Alexa voice and as to alerts, exciting our to smoke they’re will Guard customers Customers solutions begin

that for allows more. app their These lighting, the strong our provide an cameras carry the home that customers our retention center interactive customers Pulse control interactive high home their reminder, thermostats, us ADT to puts an a revenues platform theme interactive and remotely is As and the interactive rates. is important us. with at security, of

Pulse, new two-thirds quarter, rate During with is third number XX%. base three strong turn the using approaching from A converge now a total before it take items seeing. three that over the of which up like for is percentage year about of gradually about will The opted I’d services we’re our remaining now interactive ago. customers I’ve Jeff. our to to

color of information we’d analysts, spoken we’ve some business. with asked on will a counts. Today, who and First, more like the for to number additional us provide unit have on our investors

move decline despite customers, of Canadian X.X primarily monitor improvement with the ended and Excluding units fourth a for year, driven forward. our over We’ve past seen improve decline September modest wholesale the as million the operations. by contract continued consecutive we quarter expect we rate

our our strong and focus ultimate quarter profitable adding results reminder, a more with we’re RMR is of which customer know growth, there new is profitability, we closely tied seeing As fourth on to our count more in consecutive year-over-year. RMR

acquisition market, our XXXX of integrate to forward in with and forward provide we size Another the additional Hawk mention and planned information commercial going breaking financially disclosure Red of items us will we the operationally as on Red Hawk. customers to terms additional scale during is commercial look out in significant and

his served knowledge that I contributions Tim extensive for Whall and want well. have so Secondly, thank us industry to

relationship for this Tim want emerging I’m many continued time and excited so tremendous forward. leader are All point. and looking has opportunities the taking been of friend, a at his And to us ADT. just reins I express hard to when get to finally, work how am to our going forward to I a be

to We have through the Jeff and walk for financial lead place right feel shareholder privileged us strategic I prepared positioning talented and partners experience team our outlook. in performance both and the create next chapters right will the and value. With that, now and ADT. to

Jeff Likosar

and Tim, today. for the joining Thanks, call everyone thanks,

EBITDA We’re generating growth outlook. the third X% third results, included our which share balanced pleased top enhancing few year to quarter, our summarize and approach I’ll growing with last grew which in strong our X% a our year-over-year, report full line, monitoring revenue adjusted and by Consistent continued services reflect flow. revenue. quarter then to cash quarter updated highlights and overall to

Our better average which by or monitoring and attrition. growth revenue, revenue driven RMR, recurring and revenue was higher driven services customer by monthly higher gross prices was itself

revenue adjusted in installation a prior SAC, generated XX-month payback, improved X% increased We and reflecting on which in driven was by was capitalized offset fourth acquisitions. in including continued installation net due XXXX declines in primarily driven period. of X.X efficiency EBITDA Adjusted also on additions highlight Adjusted quarter to the million years this year-over-year with the outright in net we year years a the X%, and that subscriber mentioned, revenue by trailing of X%, I partially versus our new customer increase higher quarter strategy, is EBITDA. by installation dealer costs. revenues, marks result expense revenue, revenues by net our down sales revenues improved selling XX% costs, execution up, and sales, of due is basis just RMR the our growth in offset $XXX commercial and including $XXX to growth costs. SAC primarily other of our outright did acquisition or after X%, a generated reduction up efficiencies a This equipment while recent in SAC our overall a million growth which growth net increased this of which was additions was and year-over-year our other of on in the We in benefit higher income higher installation the by and higher continued We channel. consecutive improvement X.X to through in was our saw the our SAC XXXX. A associated

special to the before on in $XXX nine up flow million through cash us generated at $XXX is year-to-date million free came XXXX. brings which of million, basis, XX% Our from the which a months items first $XXX

limited times at at of X.X September, of Our year, earnings from seen end next over the the net X.X few ratios maturities years times as at have and leverage stood on start presentation. the we of the the XX debt Slide down

remains balance allowing As business. strategically source our of our to sheet us strength invest in such, a

million, we financial want million During we’ve Koch the approximately primarily to Redemption our all previously announced, $XXX items. $XXX payment treated the as to and roughly consideration Securities redemption the I accumulated statements the million that out of redeemed dividends. are included to the amounts related related quarter, which as Preferred of point within for $XXX premium total Koch

to already mentioned, agreement Jim acquire we transaction quarter. that fourth later to as million the Red in an Additionally, for $XXX.X Hawk have expect close and

our updated full to Turning XXXX year guidance.

the before flow special and cash raising and items. range both for revenue free ranges tightening customer EBITDA are outlook gross for attrition the and revenue We adjusted

year $X.XX Specifically, billion. revenue our full $X.XXX is to billion outlook range

$X.XXX to and $XXX for free billion Our range our to special million adjusted billion, $XXX to outlook increases EBITDA $X.XXX before increases a of items cash flow outlook to million.

In Red front XXXX, objectives of Our improvement our gross updated XX.X% attrition Jim our pleased summary, reflect With us. our aspects not corresponding with and that, to in the these I can your of continued months the you the nine of XXXX I’d XX.X%. outlook over Hawk acquisition. that we also through contemplate be achieving see take questions. and do in the our excited pleased financial to Slide tightened to on about presentation. note first quarterly will progress are measure range opportunities as XX revenue All ranges of guidance

So call. the open please operator,

Operator

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

Toni Kaplan

the going Thank up SAC I you. this guys. about to capitalized afternoon, quarter. ask wanted Good costs

increase the dealer accounts. mentioned in You

know keeping on new steady and that thoughts SAC And generating there’s to get change buying wanted balancing, a terms flow. so the make thought understand more balancing I in how just balance just your sort versus there accounts subs just to of get more costs cash in strategy see those. prior free wanted you’re process and of is there and so no sure your to

Jim DeVries

a opportunistically no ask You bulk it. This your a buy terrific change the in of expand will I’ll us, is past, in had This something question, bet. couple to and we is on Thanks for is do. the Jeff Dealer we Toni. Jim. answer done the comments, and periodically have dealers. to quarter and will to approach and To I question, for that accounts. continue we’ve there

is acquired, sizable we main, the four, not reasonably a the in bulk and strategy you’ve with economics pleased the pleased multiple the noted third as and We’re But of we’re had bulk with quarter. the in that bulk Jeff? acquisition. different, the the

Jeff Likosar

past. I’d value described add both as Yes, just that channels we in we the

One of XXX% half out a That next. one to It’s accounting your from from quarter magnitude You is network. are dealer I’d that about important about point have strong sell particularly efficiency accounts outright some asset. I cases, dealer to capitalized, question, whereas that direct seen direct. accounts, vary that Roughly ads to understand come revenue as the we direct our payback half, revenue But an our the partnerships dealer expense think very thing across can the certain you goes when more of perspective, generating that’s customers, by from from capitalized but progress is P&L, it for to we install. on the among is in driving where time of other sure. things at in and our

of growth shared we’re framework doing year cash fact, the on the we’ve balancing your and spending we’ve is, up the about a So the of the focused where for and see grow high-efficiency name which of objectives, beginning original that’s taken since to within guidance bit. part so us, question cash in the of and flow game we the

Toni Kaplan

follow-up That’s then And great. my attrition. on

narrowed you the of the guidance the higher attrition prior So to end range.

continuing go? Just more find about low the wanted – down change? your Just just can How just year? as talk then number Jim, sort confidence on to confidence bring broadly, improvement over the is that that on long-term thoughts about less of implying you Or Maybe well. in why attrition over attrition can about attrition the out time? and Thanks. the to

Jim DeVries

Thanks, Toni. Yes.

XXX are basis XXX So to than front, of harder a last handful I’ve basis attrition on the the points that points. times the be mentioned next going

to We exceptionally we level confident be will the attrition over improve that time. continue

XX linear, won’t but basis points a It see basis as very year-over-year continue the improvement with improvement. sequential always bullish we’ll remain points the We’re improving pleased improvement, XX and to headline attrition. be on

where XX% long we’ve to best-in-class are We point. shooting improving of to it’s were call us a between we’ve now, In get way Toni, time. continue, figures we time. think centers can for branches. and that tools to That’s We’ll our range over that long-term that in get we’re from the had kind a terms with of to coordination service, time. deploy the the that estimate, best-in-class number but we over customer away used our this Great of

us our help those customer acquisition emerging We’ll us heard our mix all a You’ve business will about tools, will penetration confidence help that us. to The and Deeper in the of to connected give traditional commercial continue continue talk And data in we’ll us. playbook. disciplined improve have home tools attrition analytics. increased some process. then

management are incentives incentives voice looking attrition improved then and We’re internal focused have we different to ensure and driving completely analytics. with at that aligned

still we’re continue. has be It’s confident the been or going we last will So opportunity. the improvement improvement the there’s it on slower but think that so, that likely forward bullish than will it year some that and

Operator

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

Greg Bardi

this Hi, in. actually is calling Greg

the wanted to acquisition. Red about Hawk ask Just

then fire cost and I of about space the thinking you’re little being talked space. how a security-first to revenue past, also provider. in the their opportunities bit be you’ve on in the commercial an about of having exposure advantage terms may a In know there. And

just you’re So opportunity fire the forward. wondering about as going thinking how an

Jim DeVries

on a Red helpful Let be Greg, see a be Hawk. share meaningful brief, with business context opportunity bit had but commercial series it’ll me some as the tuck-in think the for us. of start, context acquisitions. I I commercial a little perspective I’ll as business. about a We We’ve as of growth

business core has done well. Our

expense Red neighborhood we that for improving little RMR, in contributor revenue, different Hawk. a account, accounts of higher something basically, high accounts both us. SAC. usage our install an existence small When a quarter customers, for has XXX national It’s and economic important business the efficient in obviously As a growth have a we’ve customer the better to commercial XXX-year been of bit include It’s the you after from lower more business IRRs. of and And really in see the and major commercial – lever business revenue business our a capital our standpoint. our momentum we represent likely customers retention in as It’s model. have been we it know, business will

business. So in information some core. And already, now, feel $XXX the about revenues provided little We we about we’ve $XXX a estimated question your commercial the have excited the good Hawk, million. we’re about of momentum purchase of price to XXXX million, Red north

We’re with valuation. very the happy

XXXX good scope contracts, cash so be synergies. realize modestly financial We more expect additional in And business. have basically about multiyear profile, your expands to in we XXXX, Red It terrific a us attrition. to has space, it IRR capability. accretive fire expanded Hawk high a They as fire. our attractive strategically, excited flow brings services about into and unimportantly it the of question that very not we’re

great So tremendous. on for is talent us. fit The it’s a the team

We’re in a leadership is for exceptional an known talent. with a employees group experienced lose having And service team. business, of and and Red we talented well win Hawk or

about excited commercial. we’re So

excited question, very space. excited into about and fire opportunity about the Red to expand We’re Hawk, specifically, your to the

Greg Bardi

to Okay, sense. there like doesn’t terms of on Red independent commercial many maybe sizable makes in continue that there the point, are Hawk’s And it that players. seem out

think the about seen should about forward the expect tuck-ins space, or that wondering the M&A? commercial more the this strategy we’ve if what just So we year going should in we

Jim DeVries

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

to at acquisitions M&A tuck-in we’ll strategic story the So long look space. short, and continue in commercial

Greg Bardi

All right.

Operator

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

Pete Christiansen

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

Jim DeVries

Ring, the Thanks all in in competitive for Pete. particular, we’re significant and the would main, Amazon the We standpoint. but of radar I question, are landscape. we really hasn’t what change unimportantly, attrition a DIY it not from entrants, not the say seeing aware us in a it’s with changed not from standpoint. doing an is an screen who for And acquisition and what confront here’s

or landscape the anything pay close numbers for should leaving. we hit has intensifying an know, have I people our mentioned, competitive you the acquisition that an perspective. And radar landscape and and to isn’t that the why attention As of attrition Pete. attrition are screen

something are so for and including and limited discrete installed our that’s monitor often monitoring part in going a and fairly the in There’s our install main, some that customers. the and professional customers. the reason conclusion between professional interested folks, simple this customer is we a at smaller in of – in DIY and interested certainly new we point that overlap But and think traditional course, the solutions. that overlap, believe, that least professionally professionally for is notion competing after service we I DIY are are much entrants is of

acquisition say seen the attrition difference main, perspective. a or from we customer So I would in a haven’t

Pete Christiansen

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

Jeff Likosar

Jeff. It’s Pete. Thanks,

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

Pete Christiansen

you. thank Okay,

Jim DeVries

Thanks, Pete.

Operator

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

George Tong

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

Jim DeVries

perspective Good difficult afternoon, precisely tax perspective. and from to with precision for the growth going question. George. to a do It’s a what answer for Amazon’s us Thanks

answer a about me of some how relationship you and bit try the ADT the what we color around you’ll Let give limited to understand detail let discuss, perspective, we to but sure together. about can what we’re I Amazon I’m added me relationship. and share somewhat think can some on little Amazon

just of points So high-level start. to a couple

The And is our that specifically, voice to respects, is with more relationship into but for in for peace integrated The XXXX first that audio a period relationship. time. when had you will away work a dock to of is customers And we not four with that, and tact echo Pulse How an began another relationship use professional of we is George, use install the that for system, effectively sensors the we ourselves just safety home can or now interact integration we frankly see turn be cutting-edge Guard for lens Amazon home. be product an in relationship with with And more we ideal as from relationship we extension short Amazon as our and deeper our when From Alexa. many provide give and audio aggregating be of to of three customers. Alexa I’ll work through than essentially, mind on Amazon. a our dimensions with ADT started a use of standpoint, Amazon we’ve customers. when of one aggregator Alexa technology security available detection to devices will home. sensor monitoring technology, can provide the to audio at and always ultimately, and and that then want the that deliver use the partner launch. Amazon We kind in to service only see the detection, ADT of this and partner the ADT capability an with

tech can them. there’s dimension well with I can XX/X go XX/X details a what partnership into but then force customer to I And and this as share monitoring Our a share. the just I’m co-marketing exist, that of not service, great of able really

in early the game. it’s So

yet from not predict growth on specificity, to SAC relationship. going we’re the perspective, able, do are or We it’s a to bullish with what but

with think I a we value then Amazon, that value. relationship sharing that create an but to there’s it’s together think appreciate opportunity here internally, and we complex that

George Tong

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

Jeff Likosar

Yes, thanks, Jeff. It’s George.

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

So we��re cash free and particularly continue flow. to excited be that able to to do generate the

George Tong

Very helpful, you. thank

Operator

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

Gary Bisbee

Hey, guys. Good afternoon.

Jim DeVries

Gary. Hey,

Gary Bisbee

guess, I efficiency. at time the IPO, new about of question, a you network systems a the and you’d of So big of first the potential last variance management the out the ADT talked driver the that as fall lot across concept put data

the it, You used that the other And have to will call year? one an I results? opportunities you that you’re you. improve for there deliver data the now people the data year a you how looking over us Can forward just Or to among be is – Thank on using an have that doing the really Just the begun worst update things. into guess, of all now? that, are performers and who next biggest improve helpful. performance you’re, update of give now what’s learning curve the the

Jim DeVries

among for about in question. management and I’ll an particular, of about sort tool, bet. a the tool we but things When share. many, A our one it You Thanks variance couple tool playbook, we within it’s it’s performance Gary. within of important think think as

work trying when our customer drive centricity. to the with So we branches, we’re

driving higher culture. We’re a accountability

both indicators. We’re and lagging incredibly metrics-focused leading

Tim average a senior on team something worked talk We importance scorecard, had over measure executives, You’ve up of drive named Don our kind We of and Young the exec your perfect business. employee sleeves that to absolutes, our about engagement. us the the worked heard years. and we’re to The executives down as you roll in us. weeds know, in not here, just

XXXX, across in within It’s context, variances so forward. has for well worked. one for performance at it’s there’s part success. ADT just variance including think acquisition us or improvement, another ecosystem. as opportunity, still but pretty going an from metrics, the for May Room six last us since have handful use of would management those we’ve but so, tools. had or of drive the one tool, sort it’s over It that of that of in shrunk we that opportunity ADT. a before worked deploying We of feel results pretty significant good and worked improvement. seven the it’s And our is some I some key course But The important at ADT that and since of of frankly, playbook playbook we the to still great year say the about attrition. protection the tool in summary, very

Gary Bisbee

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

Jeff Likosar

Jeff. it’s Gary, so Yes,

for things. all combination Red There’s those a Hawk. first, So of

recurring could some installations So control systems, that would towards installing it be fire other could eye broken not be contractual. inspection access an stream. in into some contract that It systems, kind say be that that’s installation stream be with out maintenance a is an equipment. other and Not is will those revenue offerings without recurring be In cases, contractual turning types when periodically agreement. it’s come and or revenue contractual something fix and I do contractual, cases, a will of recurring

it smaller as case agreement buy Red drive Hawk for acquisitions committed contractually to of lower don’t in and and that economics monitor to commercial different some than strategy or core them The been significantly generally and they acquire time. largely an – of companies more for matter, for margin contract strategy to the the or has the inasmuch revenue, tend certainly be generally that to due more upfront that our Our that’s on revenue, time, acquisitions. recurring towards because first them lower require will be business, is rates as these just investment with over our the having the

rates So recovering That rate higher. in margin investments. core example, residential is are the in ways the margin for some upfront business, higher

the an look is tend if at through places a also where the lens it’s is because look investment we lower, ongoing lower. to So profitability this bit upfront quite for IRR and

we it’s an look focus IRR So way really commercial at the versus residential.

Gary Bisbee

Thank you.

Operator

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

Kevin McVeigh

Great, thank you.

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

Jim DeVries

to the Thanks, the second question. Jim. first Kevin. I’ll part quickly, Jeff It’s then of answer one and asked the answer

of overlap, terms it’s In minimal. exceptionally

So for the that in issue is a problem whatsoever. us not acquisition

Jeff Likosar

Yes.

So we’re prepared perspective, about remarks, you my of sheet our talked in a leverage – balance from – source strength. as would I view we a

The you change not our a Hawk from We’re times would X.X Red happy X.X will with acquisition leverage. that way. gone of current material in position to

As equal price. you be X-K, in to purchase the we the may have commitments saw financing

cash million the awarded primary our be We our goal. continues in the allocation quarter long-term conjunction evaluating to cash to more Red that about may we’re and then hand $XXX generation capital Hawk so be of with as generally on of overall with also finished closing structure capital than

M&A to value. look but we debt repay But for time, will leverages as look Hawk. Red material change of accretive also cash furthers will generation over to long-term focus to a shareholder result that or otherwise asked We a no flow

Kevin McVeigh

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

Jim DeVries

level advantaged account tough say a the National I of national to on is increasing would attrition one the account mix exceptionally It’s and the continue attrition because to our answer, Kevin. we will space. commercial in be space low.

Our commercial attrition than is a lower residential. bit little

we’ve from then years so been but couple And deploying of Toni’s improvement wind last aided because will to that is deploying some mentioned in course over that of us response of these going tools of the the lean the tools of be a starting I’d to question. into significant lower same the emerging is level come and commercial, attrition to

and is we we us road at remember a We and and The customer principle. sophisticated sentiment particularly analytics. are date do then that voice call or little modeling predictive and our customer I we’ve way not, us forward. center non-deal analytics data measure use who go talked as haven’t to those get to analytics. churn will reps to We analytics for about essentially, call everything based out done haven’t yet. voice importance than are show number more analytics to available used from there’s able proactive to earnings but discipline on us just if acquisition sophisticated interacting to to more technology tool drive down. core way, checking, date, about can’t and voice to vulnerable customers a of an in voice that But with customers stay for those we’re technology predict in that’s credit or we on a reach we used and opportunities a Again, when to believe talked a

commercial continue at day, and think using and our then end mix get going tools I our higher the between analytics a to improvement is in data revenue the of technology be emerging of some the attrition a the just to better. deployment So base to and traditional

Kevin McVeigh

Super, thank you.

Jim DeVries

Thank you.

Operator

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

Jeff Kessler

taking for my you thank Well, question.

You’ve talked from a on your bit what about audio detection that you’re bringing own. in, partly partly from developed you Alexa

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

Jim DeVries

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

Jeff Likosar

doing, has doing a into I Charles think we’re the of that there around directly direct Don integrating really really enforcement vehicle, this years to of alarm, kind pipeline standards professional audio. Jeff, and space the incoming volume we was we’re side right was I audio space. brings particularly monitoring industry it I a responders. been how law monitoring, Don to Association mean, verification build into it detection I cross for and kind first – and so advanced things hourly verification of very and question so the in we’re can terms President that and in Great in things the of in responders. and about commercial to mean, that into in Amazon He the Hey, false Son bringing video certainly, whole staying is that bringing functional across as video into that that think of working ADT Young are going There it are that a detection we’re market, Young of exciting really been make of we are things has XXX you? market audio doing and right, here. of that take mean, is bring sure kind leader that and the

currently I Don also, Nakatani We’re as now well. coming is in done PPVAR PPVAR President as Vice Tom the and that is think

said, we’re audio two main you are pieces what really So video putting areas, those and is but together. it

create technology enforcement. can into with and law so directly pipe that to We’re working that actually body bringing a the standard then we’re we take

what net. I additional first also piece we’re false would other terms AT&T in The is or alarms on security with say doing of add

familiar launch on being catastrophe. to you’re net first security first company, first signal the so actually able If company, the is in responder, that, deliver with AT&T a be ease with so to and AT&T

Jeff Kessler

All right, great.

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

Jim DeVries

Yes, great question, Jeff.

much a pointed of and more the very XXX of I see they’re more that about as dealer dominate coming we say and out, the would the that is handful And aligned process volume dealers. channel have you sales between direct. channel. dealers that large We through

the The direct are we what rate these do for of operate last the to One I pulls on in two the as on product consistently catching are has take we’re third comparisons side. three Pulse the the on bellwether selling take the course – over part over and of years, is think some dealers the the what fast been last up of because or the and was dealers the quarter quarters of few more selling trajectory Pulse the course of meaningful XX% side. the direct improvement

not in there’s all the difference So dealers any how longer much versus direct.

Jeff Kessler

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

Jim DeVries

Jeff. you, Thank

Operator

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

Jim DeVries

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

Operator

today’s concludes This teleconference.

may for Thank you your You lines now disconnect your this at time. participation.

ADT (ADT) 7 Nov 182018 Q3 Earnings call transcript