ADT, Inc. Q3 FY2024 earnings call

• Jim highlighted that ADT is continuing to deliver on 2024 objectives, with a record RMR, 5% total revenue growth, and adjusted EBITDA up 6%. A strategic customer portfolio acquisition of $81 million for 49,000 subscribers was noted. - The ADT+ platform is available across the country for a growing portion of residential customers, including a new app, refreshed hardware, and stronger integrations with smart home devices like Google's Nest ecosystem. - The Trusted Neighbor feature was launched in mid-August, allowing customers to grant trusted individuals access to their homes, with more innovations planned. - Expanded Google relationship includes their CCAI platform, with early efforts in call center operations. Advancing State Farm partnership, with self-setup alternative in Georgia and leak detection offerings in Maryland and Michigan. - Jeff mentioned adjusted free cash flow of $158 million in the quarter, year-to-date adjusted free cash flow of $520 million up 28%, total revenue of $1.2 billion up 5%, and a net debt to adjusted EBITDA ratio of 2.9x. The company repurchased five million shares and has $225 million available under share repurchase authorization.

ADT ended the quarter with a record recurring monthly revenue (RMR) balance of $359 million, up 2%. Total revenue was up 5% versus the prior year. Adjusted EBITDA was up 6%. The company had $158 million in adjusted free cash flow in the quarter. Monitoring and Services revenue was up 2%. The RMR balance of $359 million resulted from higher average pricing, a strategic book purchase, and strong customer retention. The subscriber base grew with 250,000 gross new customers added in the quarter, and installation revenue was up $40 million or 32%.

• On track to deliver full year guidance outlined in February. Tightened guidance ranges around midpoints for revenue, adjusted EBITDA, and adjusted free cash flow, while increasing the midpoint for EPS. - Fourth quarter results affected by normal seasonal and timing dynamics, including lower cash interest in certain quarters, and assessing the impact of recent hurricanes on subscriber additions. The hurricane impact is considered in the guidance range but not expected to be materially significant.

• Macro environment challenges including higher interest rates, fewer moves, and potentially lower customer credit quality. - Impact of recent hurricanes on service disruptions, which are considered in the guidance range but are a factor affecting the revenue range.

Q: Can you elaborate a little bit more on your expected financial impact for the bulk deal, as well as economics that come along with it?

A: Jim DeVries said the bulk deal was for 49,000 accounts at a cost of roughly $80 million, with returns consistent with dealer business, high teens in IRRs, and expecting continued opportunity to buy bulk.

Q: Can you provide an update on partnerships with Google and the longer-term potential from the partnership?

A: Jim DeVries mentioned an infusion of Google success funds, and Wayne Thorsen said they're rolling out virtual agents for call center deflection, with pilots starting early in the year and plans to expand through 2025, and also have a pilot with sierra.ai for conversational AI.

Q: Talk about the impact of hurricanes and one-timer-type items on guidance, and M&A strategic thinking.

A: Jeff Likosar said hurricanes' impact is considered in the guidance range, not terribly material. Jim DeVries said focus is on domestic, tuck-in M&A in core business, and Jeff added they have flexibility for M&A due to improved capital structure with reduced debt to 2.9x net debt to adjusted EBITDA ratio