ADT Inc.

Greetings and welcome to the ADT Fourth Quarter and Full Year 2022 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. To ask a question, please press star, then the number one on your telephone keypad. To withdraw your question, press star one again. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Elizabeth Lippit-Landers. Senior Director of Investor Relations. Thank you. You may begin.

Thanks, Operator, and good morning, everyone. We appreciate you joining ADT's fourth quarter and full year 2022 earnings call. Speaking on today's call will be ADT's President and CEO, Jim DeVries, and our EVP and CFO, Ken Papora. After the prepared remarks, we'll take analyst questions. Also joining us for Q&A are Don Young, EVP and Chief Operating Officer, and Jill Greer, SVP of Finance and Investor Relations. Earlier this morning, we issued a press release and slide presentation of our financial results. These materials are available on our website at investor.adt.com. Before we start, I do need to mention that today's remarks 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 described in our SEC filings. We'll also discuss non-GAAP financial measures on the call. The most directly comparable GAAP measures, along with a reconciliation of those measures, are available on our website at www.investor.adt.com. And with that, I'll turn the call over to Jim.

Thank you, Elizabeth. Good morning. Thank you, Operator, and thank you to everyone for joining us on our earnings call today. ADT released our fourth quarter and full year results this morning. 2022 was a very strong year as we delivered our financial commitments, strengthened our foundation, and advanced the transformation of our business from a traditional security company towards an innovative business poised to accelerate growth in new markets. I'd like to begin by sharing some of our growth highlights. For the full year, we grew revenues, earnings, and cash flows. Our total revenue was up 21% to $6.4 billion, generating adjusted net income of $218 million, or $0.24 per diluted share. We also posted improved adjusted EBITDA, up 11% year over year, and over $550 million of adjusted free cash flow, up 20%. Importantly, we met our commitments to our shareholders delivering total revenue and adjusted EBITDA at or above the top end of our full-year guidance and met our adjusted free cash flow guidance. As part of growing the business, we've also focused on diversifying our revenue streams. To this end, during the last several years, we've expanded our commercial business as well as acquired a residential solar business. These actions resulted in meaningful TAM expansion in both of these fast-growing markets. Our commercial revenues grew 10% for the full year, and our solar business ended just under $800 million in revenues for 2022. For yet another consecutive quarter, our recurring monthly revenue balance, or RMR, was at a record level, and we maintained our record revenue payback of 2.1 years. Customer retention also continued to improve, with gross attrition at an all-time low of 12.5%. In addition, underscored by our record revenue payback level, capital efficiency is improving our free cash generation. allowing us to invest in innovation and improve our balance sheet. We've now reduced our leverage ratio to below four. We delivered these impressive results while simultaneously driving transformation. We're effectively managing our business as we've transitioned from the traditional owning the alarm company toward a broader vision of owning the entire smart and secure ecosystem. With our expanded commercial solar and mobile offerings, ADT is the single provider that can meet our customers' needs at home, at work, and on the go. I'd like to highlight specifically the strategies we're implementing to address our customers' needs in the home. With the launch of our ADT Plus platform and next-gen hardware expected this year, we are putting all the pieces in place to expand and customize choices for our customers. Our vision includes customers choosing which distribution channel best meets their individual needs, including choosing not only our signature in-home options, but expanding other customer alternatives and choices, virtually assisted, online, and retail options. We'll also be customizing our pricing and packages, offering customers options that include attractive entry price points with greater contract flexibility. This allows our customers to determine the right combination of personalized options that will provide them with the best value for their needs. Another choice customers will have is customizing installation and service. We're leveraging advanced technology to give customers more virtual options for sales, service, and installation. To date, our virtual assistance initiatives have been a huge success as well as valued alternative to our customers, allowing ADT to deliver higher quality services at a lower cost. ADT partnerships also continue to play an important role in our transformation, and two of our most significant partnerships are with Google and State Farm. In distinctive yet complementary ways, both of these partnerships are expected to broaden our distribution reach and our customer offerings, giving customers even more reasons to choose ADT. Google Nest products have proven to be a great addition to our ADT offerings. After nearly a year in market, our attachment rates for video doorbells have doubled, and we're now selling approximately 30% more cameras per home with the Google Nest product. We expect to see more uplift in device sales as we move through this year. We've just rolled out the integrated ADT Plus app experience for our new self-install products, which integrates the Google Nest product set. We launched this just a few weeks ago, an exciting accomplishment, and we expect to do the same for our pro-install products later this year. To support this shift, we've recently launched a new advertising campaign to increase the continued awareness and differentiation of our new capabilities, further igniting customer demand. The success of our Google Nest products is also driving substantial increases in our installation revenue per subscriber, which in turn is improving our SAC efficiency. The Google Nest product edition simply said provides us with a higher quality customer offering. Complementing this success is our State Farm partnership. With an existing customer base of approximately 14 million homeowners, State Farm has the potential to provide a significant increase to ADT's overall reach. The partnership will also facilitate State Farm customers obtaining access to ADT's best-in-class protection. Together, ADT and State Farm are revolutionizing the value proposition for home insurance policyholders by leveraging smart home technology to detect and mitigate losses related to water, fire, intrusion, and other homeowner risks. We expect to begin launching in a limited number of states our first exclusive state farm offer during the first half of this year and anticipate growth from this partnership to be reflected into 2024. We had many things to be proud about throughout 2022 and during the fourth quarter. And as we begin this year, we're poised to navigate a challenging economic environment. While the macro environment remains uncertain, our business model has consistently demonstrated it is recession resilient, with approximately 70% of our total revenue coming from recurring revenue streams. Home improvement spending, as a percent of disposable income, remains at record levels, translating into stronger demand for our products. Within our consumer and small business segment, or CSB, I'm really pleased with the drivers we're seeing for increased customer stickiness. More devices per home, higher upfront customer investments, remarkable credit score mix, and higher video take rates all bode well for our future. While the demand environment appears to be steady, we're still ensuring that if we experience any material changes in demand, we're staying nimble and able to move quickly. To that end, we're streamlining our cost structure in our CSB segment. This mirrors similar actions made last year in both our commercial and solar segments. This streamlining will allow us to better focus our investments in growth and innovation while improving our speed to market and ensuring that more of our revenue growth drops to the bottom line. We're also navigating the challenging interest rate environment we face. In the consumer business, higher rates affect attrition and are actually a net positive on this important metric, given fewer relocations for existing customers. Higher interest rates also influence our solar business, where most purchases are financed through long-term, low-interest loans. This impacts both sales, as customers are seeing higher rates year over year, and also expenses, as any cost to buy down the rate gets passed through to us. And of course, the biggest potential impact could be on our cash interest. And fortunately, most of our variable rate debt is hedged. This has underscored our intent, which we shared in our investor day last year, to actively reduce our debt levels. Our net leverage ratio at the end of 2022 was 3.9, a meaningful improvement from 4.4 just a year ago. Our goal is to get that under three times by the end of 2025, consistent with our long-term financial plan. The final item we are focused on is the performance in our solar business. We've analyzed the business from top to bottom, instituting changes to improve the overall operation, customer experience and financial outcomes. As part of this effort, We appointed long time ADT veteran Jamie Hange as our new executive vice president of solar leading this growing segment. While these changes have improved results in ADT solar, we know we still have work ahead of us to drive and sustain the level of performance we expect this segment of our business to deliver. So in closing, we're optimistic for 2023. We have a recession resilient business model and a plan to mitigate the challenges we may face in these uncertain economic times. We have two meaningful consumer growth catalysts and our partnerships with Google and State Farm and line of sight to growing revenues, earnings, and cash flows in the year ahead. Our commercial business is thriving and we have action plans in place to capitalize on the growth available to us in the solar market. We have a strong plan and commitment to meeting both our 2023 objectives and the 2025 goals we laid out at Investor Day just a year ago. I'll now turn the call over to our CFO, Ken Papura, who will take you through the details of our financial results, including guidance for 2023.