Executive Summary / Key Takeaways

• ADT has strategically pivoted to focus entirely on its core U.S. security and smart home business after divesting its commercial and solar operations, aiming to capitalize on a large and growing market.
• The new proprietary ADT Plus platform is a key technological differentiator, enabling enhanced features, integrations, and a shift towards a customer-owned equipment model, driving installation revenue growth and improving subscriber economics.
• Recent financial results demonstrate solid performance, with Q1 2025 revenue up 7% year-over-year, record recurring monthly revenue (RMR) balance ($360 million), and record low gross customer revenue attrition (12.6%), reflecting strong customer retention and pricing power.
• Significant improvements in capital structure, including reduced net debt (2.9x Adjusted EBITDA) and an efficient weighted average interest rate (~4.5%), provide enhanced financial flexibility for strategic investments and substantial shareholder returns via dividends and share repurchases.
• Management has reaffirmed its full-year 2025 guidance, projecting continued growth in revenue, Adjusted EBITDA, Adjusted EPS, and Adjusted Free Cash Flow, underpinned by operational efficiencies, strategic partnerships (Google (GOOGL), State Farm), and disciplined capital allocation, despite potential macroeconomic headwinds and tariff impacts.

A Legacy Reimagined: Focusing on the Core of Safety and Smart Living

ADT Inc., a company with roots stretching back 150 years to 1874, has recently undergone a significant transformation, strategically refocusing its business to concentrate solely on the U.S. residential and small business security and smart home market. This pivot follows the divestiture of its commercial business in 2023 and the wind-down of its residential solar operations in 2024. These actions, while impactful to past financial reporting, have streamlined the company, allowing it to dedicate resources and management attention to its core strengths: providing safety, interactive, and smart home solutions. The company views this market as large and growing, with significant opportunities in adjacencies like standalone devices, aging in place, and expanding its small business footprint.

The company's strategy is anchored in three core pillars: delivering unrivaled safety, offering innovative solutions, and providing a premium customer experience. This strategy is deeply informed by its long history and brand recognition, which management cites as key drivers of customer trust and retention. To execute this strategy and adapt to evolving market demands, ADT has invested heavily in its technological foundation and operational capabilities.

The ADT Plus Platform: A Technological Foundation for Innovation

Central to ADT's strategic future is the new proprietary ADT Plus platform. This next-generation ecosystem, which began rolling out to self-setup customers in 2023 and expanded nationwide for professionally installed residential customers in 2024, represents a significant technological leap. The platform features refreshed hardware, a new user interface, and an enhanced overall user experience, designed to be the foundation for future innovation and unique customer experiences.

The ADT Plus platform offers tangible benefits, including enhanced installation flexibility and configurability. Crucially, it provides stronger integrations with leading smart home ecosystems, notably Google's Nest. The ADT Plus app has received positive feedback, averaging 4.8 stars across thousands of reviews. This platform also facilitates a strategic shift towards a customer-owned equipment model for a growing percentage of new installations, moving away from the legacy company-owned model. This transition impacts revenue recognition, with installation revenue and associated subscriber acquisition costs (SAC) recognized upfront for outright sales, a change expected to become more material in 2025.

The first experience built on this platform is Trusted Neighbor, launched in mid-August 2024. This innovative feature allows customers to grant secure, temporary access to trusted individuals, leveraging integrations with partners like Yale Lock and Google's Nest familiar face feature. The company is exploring further innovative access methods, including biometrics and a touch lock feature. Early results and customer feedback on Trusted Neighbor have been positive, signaling the platform's potential to deliver differentiated value.

ADT is also leveraging technology to enhance its operational efficiency and customer experience. The company has expanded its partnership with Google to utilize their Cloud Artificial Intelligence (CCAI) platform, with initial efforts focused on call center operations. Management expects AI agents to process 90% of customer service chats and contain 20% of voice calls by the end of 2025, contributing to efficiency gains that are expected to ramp up nicely in 2026. Furthermore, the company has successfully resolved over half of its service calls remotely, avoiding thousands of truck rolls and reducing field service costs, with capabilities expanding to address home WiFi network issues.

Navigating a Competitive Landscape

ADT operates in a highly competitive market, facing both direct rivals and indirect competitors. Direct competitors like Vivint Smart Home (VVNT) and Alarm.com Holdings (ALRM) offer alternative security and smart home solutions. Vivint often competes with a more app-based, sometimes DIY-focused approach, while Alarm.com specializes in cloud-based platforms. ADT's competitive advantages, or moats, include its strong brand recognition and extensive network, which drive high customer retention and provide a significant market share lead (ADT holds an estimated 96.68% aggregate market share in its primary segments, per one source, significantly outpacing rivals like Cass Information Systems (CASS) at 3.26%).

ADT's proprietary technology, including the ADT Plus platform, offers differentiation through enhanced features and integrations. While some competitors like Alarm.com may exhibit faster technological agility in certain areas, ADT's integrated ecosystem and professional installation/monitoring services provide a distinct value proposition, particularly for customers prioritizing reliability and comprehensive service. The company's extensive network of field service offices enables broader coverage, including in rural areas, providing a competitive edge over competitors with more limited physical footprints.

However, ADT faces vulnerabilities, including a relatively high debt level compared to some competitors, which can impact financial flexibility and expose it to interest rate fluctuations. While ADT's profitability margins (TTM Gross Profit Margin: 74.25%, TTM Net Profit Margin: 11.05%) are generally strong and often superior to competitors like CASS (2024 Gross Profit Margin: 34%), the company's operational costs can be higher due to its full-service model. The strategic shift to outright sales with ADT Plus is intended, in part, to improve subscriber economics and acquisition efficiency, addressing some of these cost dynamics. Indirect competitors, including DIY providers and tech giants like Amazon's (AMZN) Ring and Google's Nest, offer lower-cost alternatives that can pressure pricing in certain market segments. ADT's strategic partnerships with Google and State Farm are key initiatives aimed at enhancing its competitive position, expanding sales channels, and leveraging technology for innovation and customer acquisition.

Financial Performance and Strengthening the Balance Sheet

ADT's recent financial performance reflects the initial impacts of its strategic pivot and ongoing operational focus. For the three months ended March 31, 2025, total revenue grew 7% year-over-year to $1.27 billion. This growth was driven by both segments: Monitoring and related services revenue increased to $1.08 billion (vs. $1.06 billion in Q1 2024), primarily due to higher average prices. Security installation, product, and other revenue saw substantial growth, rising to $184.387 million (vs. $127.020 million in Q1 2024), largely attributable to the higher mix of professionally installed outright sales under the ADT Plus model at higher average prices.

The company ended Q1 2025 with a record recurring monthly revenue (RMR) balance of $360 million, up 2% year-over-year, benefiting from increased average prices on new and existing subscribers. Gross customer revenue attrition improved to a record low of 12.6%, down from 13.1% in the prior year period, driven by a reduction in voluntary and other disconnects, partially offset by higher non-payment disconnects.

Adjusted EBITDA from continuing operations for Q1 2025 was $660.8 million, an increase of 4% compared to $637.7 million in Q1 2024. This improvement was primarily driven by higher monitoring and services revenue margins and increased installation revenue margins, partially offset by a higher allowance for credit losses and increased share-based compensation expense. Adjusted Earnings Per Share (EPS) from continuing operations increased 11% to $0.21 in Q1 2025, up from $0.19 in Q1 2024, benefiting from improved profitability and a lower diluted weighted average share count due to share repurchases.

ADT has made significant progress in strengthening its capital structure. Net debt stood at $7.6 billion as of March 31, 2025, resulting in a net debt to Adjusted EBITDA ratio of 2.9x, achieving the company's target milestone. The weighted average interest rate on its debt is approximately 4.5%. The company has actively managed its debt profile, including amending its First Lien Credit Agreement in March 2025 to issue a new $600 million term loan and using proceeds to redeem $500 million of its First Lien Notes due 2026. The next significant debt maturity is the remaining balance of the 2026 notes.

The improved financial health and flexibility have enabled the company to return significant capital to shareholders. In Q1 2025, ADT returned $445 million through share repurchases and dividends. The company repurchased 53 million shares for $397 million in Q1 2025 and an additional 6 million shares in April 2025 under its 2025 Share Repurchase Plan, which authorizes up to $500 million through April 2026. Approximately $148 million remained under the authorization as of April 24, 2025. The company also declared a quarterly dividend of $0.06 per share.

Outlook and Risks

ADT has reaffirmed its full-year 2025 guidance, reflecting confidence in its strategic execution and the resilience of its business model. At the midpoint of the guidance ranges, the company expects:

• Adjusted Free Cash Flow (including interest rate swaps) in the range of $800 million to $900 million, representing a 14% increase.
• Adjusted Earnings Per Share in the range of $0.77 to $0.85, representing an 8% increase.
• Total Revenue in the range of $5.025 billion to $5.225 billion, representing a 5% increase.
• Adjusted EBITDA in the range of $2.65 billion to $2.75 billion, representing a 5% increase.

Management anticipates monitoring and services revenue to grow by approximately 2%, with the remainder of the total revenue growth driven by installation revenue due to the continued rollout of the ADT Plus platform and the shift to outright sales. This transition, along with increasing expenses related to the cloud migration, is expected to pressure Adjusted EBITDA margins, although these impacts are anticipated to be offset by M&S revenue growth and overall cost efficiencies.

The outlook is based on assumptions including navigating macroeconomic uncertainty, managing the impact of potential tariffs (for which mitigation plans are in place), and realizing efficiencies from operational initiatives like virtual service and AI adoption. Savings from AI are expected to become material in 2026.

Key risks to the outlook include potential negative impacts from macroeconomic conditions on consumer spending and customer delinquencies, the effect of tariffs on equipment costs, and the execution risk associated with the ongoing IT transformation and the successful rollout and adoption of the new ADT Plus platform and associated offerings. An ownership change in 2025 due to share transactions could also potentially limit the utilization of tax attributes in the future.

Conclusion

ADT is executing a focused strategy centered on its core U.S. security and smart home market, leveraging its strong brand, extensive network, and innovative ADT Plus platform. Recent financial results demonstrate solid performance, highlighted by revenue growth, record RMR, and record low attrition, supported by operational efficiencies and strategic partnerships. The significant improvement in the company's capital structure provides increased financial flexibility to invest in growth initiatives and return capital to shareholders. While macroeconomic uncertainty and competitive pressures persist, ADT's strategic focus, technological advancements, and disciplined execution position it to deliver on its 2025 objectives and capitalize on the evolving security and smart home market. The successful adoption and monetization of the ADT Plus ecosystem and the realization of operational efficiencies, particularly from AI, will be key factors to watch as the company continues to build on its 150-year legacy.