The ADT Corporation (NYSE:ADT) Q3 2018 Earnings Conference Call Transcript

Nov 07, 2018 • 05:00 pm ET

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The ADT Corporation (NYSE:ADT) Q3 2018 Earnings Conference Call Transcript

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Presentation
Operator
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. Please go ahead.

Executive
Jason Smith

Thank you, operator. Good afternoon, everyone, and thank you for joining us on ADT's third quarter 2018 earnings conference call. This afternoon, we issued a press release and slide presentation on our quarterly results. Both are available on our website at investor.adt.com.

(Forward-Looking Cautionary Statements)

During today's call, we'll make reference to non-GAAP financial measures. Our forward-looking non-GAAP financial measures exclude special items, which are difficult to predict and mainly dependent upon future uncertainties. For a complete reconciliation of historical non-GAAP to GAAP financial measures, please refer to our press release issued this afternoon and our slide presentation, both of which are available on our website at investor.adt.com.

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

Executive
Jim DeVries

Thank you, Jason. It's a pleasure to speak with everyone this afternoon about our strong third quarter results, the significant strategic progress we made during the quarter and our favorable outlook. I'm pleased to share that we generated growth across all key financial measures, including revenue, adjusted EBITDA and free cash flow.

We grew total revenue 6% to $1.148 billion in the quarter, driven by residential Pulse penetration, continued improvement in customer retention and strong momentum in signing new commercial and multi-site accounts. We grew adjusted EBITDA 3% to $610 million, and importantly, we've generated year-to-date free cash flow before special items of $479 million compared to $381 million in the year prior, an increase of 26%.

This financial performance is a direct result of our team's focus on profitable growth and the metrics we know to be most closely tied to our overall financial success. These metrics include customer retention and the efficiency with which we acquire new customers. I'd like to share a few comments about both. During the third quarter, we improved our gross customer revenue attrition on a trailing 12-month basis by 40 basis points versus a year ago to 13.4%, and that also compares favorably to last quarter's 13.6% level. This improvement reflects our focus on high-quality customer selection and providing quality service to our customers.

Turning to net subscriber acquisition cost, or SAC. Due to our continued optimization, we were able to improve our customer revenue payback on a trailing 12-month basis to 2.4 years versus 2.5 years in the prior year period. On a granular basis, this year-over-year improvement is due to increased installation revenue and greater efficiency in selling and installation cost. As we've mentioned, every 0.1 points of improvement in revenue payback equates to approximately $60 million in annualized cash savings.

ADT is already a leading home security provider, offering fully interactive home experience. Our