ADT, Inc. Q4 FY2024 earnings call

Key Points

• ADT delivered strong top and bottom line results for Q4 and full year 2024, with record high recurring monthly revenue balance, record customer retention, and strong cash generation.
• Completed wind down of solar operation in 2024, now focused on core security and smart home business. Market projected to be $23 billion in consumer spending within four years.
• Launched proprietary ADT Plus platform in 2024, available nationwide to growing new customers, providing refreshed hardware, new UI, enhanced experience, etc. ADT Plus app has positive feedback.
• Launched Trusted Neighbor in Q3 2023, enabling secure access for trusted individuals. Adopted AVS-01 standard, earned Most Trusted Home System Brand and Monitoring Center of the Year Award.
• Improved customer satisfaction through virtual service, first call resolution, and onboarding processes, leading to record customer retention. Reduced field service costs via virtual service.
• Launched partnership with Sierra for call center AI. Rolled out new brand platform 'When Every Second Counts'. Progressed with dealer partners and sales channels like State Farm.

For the full year 2024, total revenue was $4.9 billion, up 5%. Adjusted net income from continuing operations was $685 million, or $0.75 per diluted share, an increase of 25%. Adjusted free cash flow, including interest rate swaps, was up 42% to $744 million. In the fourth quarter, adjusted EBITDA from continuing operations was $653 million, and for the full year, it was $2.6 billion, an increase of 4%. Monitoring and services revenue grew 3% for the year, driven by a record RMR balance. 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. Gross revenue attrition was a record 12.7%.

2025 Guidance

• Expect adjusted free cash flow, including swaps, to be in range of $800 to $900 million in 2025, midpoint representing 14% increase from 2024.
• Guide to adjusted earnings per share of $0.77 to $0.85, midpoint increase of 8%.
• Expect full-year revenue in range of $5.025 to $5.225 billion, midpoint increase of 5%, with M&S revenue growing ~2% and installation revenue driven by ADT Plus platform rollout.
• Expect adjusted EBITDA to be in range of $2.65 to $2.75 billion, midpoint increase of 5%.
• First quarter expected to be lowest growth quarter across guidance metrics due to seasonality and timing of items like cash interest.

Risks

• Forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially, as detailed in SEC filings. For example, factors that may affect actual results include those related to market conditions, competition, and regulatory changes. Additionally, significant tariffs could put pressure on the business, though magnitude is expected to be within guidance ranges.

Q: 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?

A: Jim DeVries said in 2024 they executed bulk deals for about 49,000 accounts, didn't do bulk in Q4, and when economics work, they'll pursue opportunities, currently exploring with two or three parties including the one from last year. Jeff Likosar added on capital allocation about broad priorities including investing in business, strengthening balance sheet, and returning capital to shareholders.

Q: Can you elaborate on the State Farm partnership? And how Q4 came in from a sales perspective relative to prior quarters?

A: Jim DeVries said they continue chipping away on regulatory work, now in 17 states with 45% of State Farm policies in force, did DIY trials in two states and leak detection in two others, total sales through State Farm in 2024 was 18,000 vs 5,500 in 2023.

Q: Ronan Kennedy asked 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.

A: Jeff Likosar said they launched new offer structure on ADT Plus platform last year, making new choices in bundling, etc., and will optimize by adjusting knobs and dials as they build experience. Jim DeVries added about refining territory management, leaning into resales, and leveraging tech engineer model with improving conversion.

Q: David Page asked about incremental opportunities like small to medium-sized businesses.

A: Jim DeVries said SMB represents ~500k of 6.4 million customers, renewed efforts with new leader, looking at new product/functionality, and will lean into more assertively in 2025. Jeff Likosar added about optimizing for relocating customers and targeting different segments like pets or aging in place.

Q: Peter Christiansen asked about subscriber asset spending and upgrading existing customers on the new platform.

A: Jeff Likosar talked about guidance drivers and SAC efficiency. Jim DeVries said it's advantageous to upgrade existing cost plus ecosystem, working with manufacturing partners to do it cost-effectively.