ADT Inc. (ADT) Earnings Call Transcript & Summary

Thank you for joining us on day 2 of the DB Media, Internet, Technology Conference. With -- here today are Jim DeVries, CEO of ADT; and Jeff Likosar, the CFO of ADT. Thank you for joining us. Welcome to the DB Media Conference. How are you, guys?

Doing well, and thanks for having us.

Good morning.

Great. So without much ado, let's get into some of the Q&A. And we will be -- for people in the audience, if you have questions, please post it, and we will take your questions. And we'll probably intersperse them between the questions that we asked of Jeff and Jim. So you guys pioneered the space 150 years ago. You are the market leader and almost a household name. For this year, you're planning to invest more on subscriber acquisition cost to drive faster RMR growth. Some of that is already included in the Ackerman acquisition. What else are you planning to do to drive residential growth?

So Kunal, there's really 3 things that come together that are sources of growth for us. The first is we've talked a number of times about the demand catalysts, de-urbanization, smart home adoption, home builds. And those are very real external macro trends that are serving to create demand for our products and services. So the first leg of the stool is the demand catalyst, external demand catalysts. Secondly, there's been a great deal of work over the course of the last few years to really improve our internal processes. We're better today than we were last year at marketing efficiency. We're better today than a year ago at converting leads. And those internal processes serve to help drive new growth for us as well. And then, not unimportantly, the third leg of the stool really orbits around our partnerships. The partnership with D.R. Horton, the partnership with DISH. Obviously, Google is transformational for us. And when you bring those 3 together, we're able to grow in a more substantial way in 2021 than we have over the course of the recent history.

One thing I'd add there, too, we're really fortunate that many of these factors are coming together to collectively in a flywheel-type effect contribute to our growth. We got a lot of questions about how much from any individual factor. And our view is they all interplay with one another. We were very fortunate, for example, to have our new pricing and financing model in place last year when we saw some of the demand catalysts from de-urbanization, as an example, or to have the partnerships in place with homebuilders before people started buying homes in larger quantities. So we feel really good about where we are. And to Jim's point, it's the foundation we've laid over the past couple of years has gotten us to a spot where we're starting to see accelerated growth in the back half of last year into this year.

Great. So yes, no, actually, I was going to ask you a question on the partnership. So let's start with D.R. Horton. And what's the customer value proposition there? What's -- so when people kind of move into homes, what's already there? What do they need to add on? How much do they need to pay? And what's been your success rate with, say, a partnership with D.R. Horton?

Yes. So our partnership with D.R. Horton is facilitated through one of our largest, most successful dealers, a dealer called Safe Haven. We had -- Safe Haven had a small portion of the D.R. Horton business prior to D.R. Horton last year consolidating all of their home builds with Safe Haven. And the way that it works is, Safe Haven, our dealer, will install a smart home system anywhere between 8 and 10 pieces of hardware in a home. And when the home buyer moves into that property, they, Safe Haven, works to convert them into a professionally monitored customer. And when they're successful in doing so, then we will acquire that customer from Safe Haven the way that we do through any of our dealer acquisition processes. So we're out of the gates nicely. D.R. Horton is a fantastic partner. Safe Haven is doing a terrific job for us. Over half of the homes where Safe Haven installs a smart home system, they'll become monitored customers. So it's out of the gate nicely.

That's a pretty substantial success rate. So what gets the other guys to kind of -- the other builders, Toll Brothers and what have you and everybody else to kind of come on board and have these systems preinstalled and so that they can get customers like from the get-go?

Yes. So there's a lot of work in the builder space that we're pursuing, so are our competitors. As smart home adoption increases, the customer demand to have smart home built into new builds is increasing. And so we're pursuing it, Kunal. There's a handful of pilots that we're doing right now with other builders. We've been successful in developing partnerships with a handful of regional builders. But we're going after this space in earnest, and there's a lot of tailwind in this space, as you know, because of the number of home builds that the country is experiencing. So we see it as a growth opportunity. We don't intend to stop with D.R. Horton, but we feel really good about the progress with D.R. so far.

That's great. There's another partnership, and that is something that you just entered recently with DISH network. And the intent from what we understand from the outside is that will help you enhance your coverage in rural areas. So what percentage of their subscriber base is rural? And then for the solution, from the technology, the way we understand, there isn't a lot of like cable broadband or high-speed fiber in those homes. So how will the video solution work when you're living in literally the boondocks?

Yes. So the video solution we're working together with DISH to address that issue. There will be some customers where the video solution may not be available, but our technical folks and their technical folks are working together to solve that issue. The relationship overall with DISH is brand new. We just announced it a few weeks ago. And essentially, what it provides for us is exactly that, Kunal. It gives us exposure to a market that we can't really reach because of our inability to service customers that are too far into a rural area. DISH has about 5,000 technicians, and they have service capability in ZIP codes that we don't have. And so our partnership with DISH exposes -- creates an opportunity for us to do business in 6,000 ZIP codes that we don't do business in today. And for DISH, it's principally a cross-sell opportunity. I think you cover DISH, so you know those guys pretty well. They are -- they do, give or take, about 4 million truck rolls a year. They're incredibly customer-centric. We feel super proud to have a relationship with them. And for our do-it-for-me, our professional install services, it really creates new incremental TAM for us. Last thing I'll share on DISH, we'll be out in about 10 markets, 9 or 10 markets in March and April with our soft launch training DISH technicians on how to install our products and services, engaging them in our sales processes and seeking to get the relationship off to a great start.

Great. There's one other point before we go into some -- deeper into some of the other subjects, and this was something that, Jeff, you brought up, consumer financing. And you had switched over to a consumer financing model briefly last year and then you quickly reverted back. What is the rationale for like for you to own the equipment? Why do you need to own it? And why was there a need to switch back?

Yes. So actually, we started our consumer financing work in 2019. We initially piloted in about a half dozen markets. We expanded during 2019. I think we had 20 at the end of the year. And we did that, to your question, under a consumer loan model, where the customer took out a loan with a third-party bank and use that to finance the equipment purchase. And then that was kind of separate from -- it was related to, but separate from the contract for the monitoring service via ADT. When we rolled it out nationally, we, for reasons to do with a better customer experience and better economics, we shifted to a model where -- in partnership with Mizuho, where we effectively securitized a batch of receivables. So one of the features of the consumer loan model is it caused us to have to move away from our historic equipment ownership model for most of ADT's history or at least as far back as I've looked. ADT on the residential side retains ownership to the equipment. That's because we think it best reflects the nature of the relationship with the customer, mainly because the customer doesn't generally pay us an amount upfront equal to the equipment value. We recoup that over time. There are some other reasons, but that's our -- that's the main reason that, that is our preferred model. So another of the advantages of moving to Mizuho in addition to better economics and the smoother customer experience is it enabled us to go back to the model we've had for many years in the past, which is where ADT retains ownership to the equipment. The financing model and pricing model changes we made have been quite successful. We're really pleased with where we are approximately 1 year after our national rollout. And we continue to fine tune, and we'll make some adjustments and tweaks along the way, but it's contributed to more install revenue or less of a subsidy, if you will, coming from our customers. And it's one of the factors, as we alluded to earlier, that's contributed both to our growth and to our improved subscriber acquisition cost efficiency.

Jeff, as a follow-up on that, would you consider like giving consumers the flexibility to be able to say, "Hey, you know what, I will pay you the $2,500 upfront for the equipment. Let me own it. In that way, I can pay a much lower service fee." Is that something that you would consider having that flexibility?

Yes. And even in our historic model, we talked about it as being predominantly an ADT-owned equipment model, but there are certainly transactions and circumstances that depend on the nature of the system, the nature of the customer, the comprehensiveness of the system and the amount of revenue that we collect from the customer upfront, where we deploy different models, including an ownership model. That's more of an outright sale. So we've done that historically in certain kinds of cases.

Great. Let's focus on commercial, and that was the growth aspect of the growth story that you were talking about a couple of years ago. So on the commercial side, most of the revenue is captured upfront at the time of the installation. And the RMR contribution, the recurring contribution, is only modest. Can you talk about the revenue that you get for every store that you install? On average, what your installed costs are? And then what kind of revenues do you get on an ongoing basis?

So the commercial business is difficult to discuss when we talk about averages, Kunal, because the dispersion is pretty significant. There's a large variety of customers in this space. And we have a national accounts business where we provide security to retailers, but we also have a substantial commercial business, integrated fire, card access, video intrusion, where we'll do very substantial installations in hospitals, schools, warehouses, et cetera, office buildings. And so the averages get a little bit misleading because of the variety of installs that we do in the commercial space. That said, generally speaking, the model in commercial involves much more upfront installation revenue relative to our residential business. In residential, give or take, about 85%, 95% of our revenues are recurring revenues, 10%, 15% installation revenue. In the commercial space, it's closer to a 60%-40% split. About 40% of the install revenue -- 40% of the revenue is via installation revenue and about 60% is recurring. So different economics, more money upfront, more investment upfront from commercial customers via installation revenue. We look at the commercial business, the same way we do the residential business when assessing the opportunity. It's essentially through an IRR lens or return lens. And because the amount of money upfront is so substantial in the commercial space, we're able to achieve IRRs that are similar, sometimes even better, in the commercial space than in residential. Last thing I'll share on residential -- on commercial, it represents, give or take, about 20% of our total company revenues, and we see it as a nice growth opportunity for us.

And one thing I'd add, too, would just to emphasize on the IRR point. Every time we take on a customer, we look at it through a lens of how much does it cost us to take on that new customer, how much revenue or really margin are we going to generate from that customer over the customer's life, almost like an annuity, and then how long will that revenue stream last, which we measure in customer retention. So on commercial customers, the composition of those variables is a little bit different. So somebody new to our business would observe -- and especially in the future as we share more about our commercial business, that the margins in commercial are lower than residential, but that's because the upfront cost is lower on a relative basis. On an absolute basis, there can be jobs that are way more expensive because they're much larger facilities. But relative to the recurring revenue, the upfront cost tends to be lower. Commercial businesses in our space tend to -- if you look at stand-alone commercial businesses, they tend to run at EBITDA margins in the 10% to low double-digit range, but they also tend to be less capital intensive. So for us, when we take on a customer or even if we do a tuck-in acquisition, we're always looking for recurring revenue. But to your point, they often come with less on a relative basis, but still substantial recurring revenue on an absolute basis.

Great. Let's switch to another partner, that is Google. So when you look at the development time line, what are the milestones that you're working towards as far as 2021 is concerned and the milestones that you're working towards 2023? And at what point during this process do the payments from Google get triggered? Or any other kind of support, marketing or whatever else that they can bring to the table, how does that get triggered?

So the partnership with Google was announced in August of 2020. As part of that relationship, Google invested $450 million as an equity investment in ADT. We signed a long-term deal, a 7-year commercial deal, and that deal included what you're referencing, Kunal, the $150 million of matching investment for 3 areas. The first area is around training our employees on Google equipment. The second is for technology investment. And the third is for marketing. And the first tranche, the first $50 million isn't tied to certain productivity achievements. The second and third tranche are tied to productivity, to productivity goals. And those productivity goals are essentially subscriber-driven. The first $50 million -- much of the first $50 million will be used for the launch of ADT and Google in the second half, the marketing launch in the second half of 2021. And then as we achieve our subscriber objectives over the course of the coming years, the second $50 million and the third $50 million of matching investment will occur. In terms of milestones, we set out initially to launch the ADT + Google product lineup in mid-2022, working together with Google, our outstanding engineers, an important vendor partner of ours, Alarm.com, we worked together to have a product launch in the second half of 2021 that includes Alarm.com as the interactive, the software on the phone that allows the customer to control the devices in the home. Alarm.com will be integrating the Google hardware into our Command and Control ecosystem. So long story short, we'll be able to roll out as ADT + Google a bit earlier than originally anticipated. And then our engineers, again, working together with Google, are developing our own interactive that we'll have in place for January of -- for first quarter of '23, and we'll roll that out for our longer-term solution.

Kunal, one thing I'll clarify, too, just because we've gotten this question a lot, is when we talk about a $150 million, an important point is that what we've agreed is both firms will invest $150 million for $300 million total into the relationship. We've gotten some questions along the lines of when is Google sending you your $50 million. And I just want to emphasize that this is both parties co-investing. And to Jim's point, the likely nature of that investment will be heavy towards the rollout of the initial brand in 2021. But it's part of our outlook for the year, and our cash flow guidance includes or supposes that we will make a portion of that investment and Google will make a portion of that investment.

Okay. We'll come back to the guide in a bit. But sticking with Google, Google offers just enormous array of services that can have applicability within the smart home and the smartphone and basically a smart human being kind of space, maps, Android, image recognition, natural language processing and, for the likes of us, artificial intelligence to make up for what we lag naturally. When you -- there's a number of element that you've talked about that you will try and pick up for Google. Can you help us understand what we should expect from ADT + Google in the back half of this year? And then as you look at like 2023, how should we be thinking of the ADT system then?

Yes. Essentially, what the partnership does for us is it facilitates the smart home becoming smarter. Google refers to the home as helpful home. And through their engineering, through their technology, it facilitates the household being more helpful to the customer. For us, we're as excited. We love the hardware. It's terrific. The aesthetics are beautiful. But we're probably even more excited about the data analytics, the video analytics, the technology that Google brings to the table. There's nobody better in video analytics than the folks at Google. And it will enable us to have a more interactive smart home system than what exists today. An example that I sometimes will talk about, Kunal, that I'll share with you that the technology will enable us to do is really create a higher-fidelity alarm. Today, when a customer arms their system and the, say, front door is open, that will send us a signal that the door is ajar. We'll try to contact that customer. If we're successful, terrific. If not, the first responder or police will be dispatched. In the future, we'll be able to have a more sophisticated, higher-fidelity alarm event that might go like this. The door is ajar, event #1. Event #2, a motion detector picks up motion in the hallway. Event #3, a video in the kitchen identifies an unfamiliar face. We then integrate all those instances, all those occurrences with the time of day, when the system was armed, how long ago the system was armed and using that data and video analytics creates a higher-fidelity alarm that can potentially be consumed by first responders in a different way. And that offers a sort of pragmatic example of the kinds of things that we can do -- excuse me, that we could do together with Google.

One of the things that you talked about integrating into this ADT + Google service is Maps. How does Maps kind of play into this?

We're not yet sure is the transparent answer. We're doing some work with Google still, still working through how to leverage all of their resources. Both organizations hold customer privacy as paramount. And so everything that we're trying to resolve in terms of how to leverage the assets that both organizations have is done through a lens of ensuring that customer privacy is paramount.

So help me with something. This is a scenario that I often talk to investors about in terms of how can your home be smart. And one of the ways the home can be smart is I leave work, the Google app on my phone knows I left work. It knows I'm taking whatever commute method, whether I'm driving or taking a train. The system -- my phone knows, and so the phone can communicate with the home and say, "You know what, Kunal is 30 minutes away from home. This is the right time to switch on the air conditioning. And 5 minutes before Kunal arrives at home, switch on the lights or if there is an intruder somewhere or a face that you don't recognize on the driveway, kind of let him know." Is that kind of integration like really hard to expect? Or is that possible at all?

That's absolutely possible. And there's all kinds of examples. When a child comes home from school. And if we have automated locks as part of the system, we open the door. The door is closed. The child comes into the home. We send a 6-second video clip to the parent notifying them that the child is home, letting them know that we locked the door behind them. Your example of the phone knowing where you are and knowing when to turn on lights and adjust the thermostat is a great example. Jeff sometimes talks about, if I leave the home and forgot to close the garage door, I'll get notified that you left the garage door open. Would you like it closed for you? Or do you want to leave it open? So there's all these practical, helpful, smart features that are increasingly available to customers in the next generation of smart home.

And I had 2 things I'd add. One is it also enables logical aggregation of things like wing -- one arms a system at night, presumably, you would want to make sure garage doors is closed or make sure certain lights are off or maybe other lights are on. So aggregating a number of those transactions into one event. And then second, that's important. This is maybe a subtle distinction to Jim's example is also technologies to enable notification when something does not happen. So if the child did not come home from school, the door did not open at 3:15 as planned or use cases like aging in place, if no motion was detected by 8:30 a.m. or 9 a.m. maybe with an older person living home alone, that could be set to send a notification to a caregiver or a relative. So there's a lot of places that this can go. We're really excited about the things that are on what I would describe as the near to intermediate term road map, but we're probably even more excited about some of the things that aren't even on the road map yet that are still in the art of the possible category.

That's great. And it's so much better that you have the ability to actually build a new system from scratch. One of the things that you had done previously was you had made an acquisition a couple of years ago or a few years ago on a team of engineers that were like working on subsystem and system integration. What exactly were they doing prior to this? And are you leveraging that team to build out or help build out this ADT + Google system?

And which team are you referring to, Kunal?

There was an acquisition that I was told that you had made a couple of years ago where you had acquired some engineering team.

Yes, you're probably referring to a company called I-View Now, which is focused on the next-generation of monitoring. So it's things along the lines of what Jim was describing of being able to take information rather than just a binary, the door contact, detect that the door is open, yes or no, but combine it with other information that could be from different kinds of sensors, could be from cameras, could be integrated with facial recognition, but as a means of assigning differences to different kinds of alarm events to be able to then further convey that information to dispatchers in such a way that they take action in a different way. So to answer your question, absolutely, that is very much integrated with our business and will soon become indistinguishable from some of the other product development work we're doing in partnership with Google.

Correct. You mentioned a smart home and how you're developing that system. As you look at the architecture of both the hardware and the software, are you thinking of this as more an open system, where if -- once I install the system, can I go in and buy a WiFi-enabled or a Zigbee-enabled bulb and kind of put it in my home, and it will work automatically with the system? Or do I need to buy it necessarily from ADT? How are you thinking about the system and the open versus closed ecosystem?

Yes, we would envision an ability for the -- anything that's integrated with the Google ecosystem would be part of the ADT system. So you would be able to control devices far beyond what you would historically be able to interact with using the ADT platform.

Within, of course, certain features or certain capabilities being available only in relationship to an ADT system. But ancillary devices, such as a light bulb, will likely to be structured in such a way that it could be easily added.

Great. That brings us to the subject of competition. And there can be multiple routes that we can take on it. But one question we get a lot of times is, aside from the DIY versus DIFM and all those things, is Amazon. And typically, even if it does not enter, even if it does not devote a lot of investment resources into a particular space or a system, it is still considered to be a significant competitor. And they had announced the Ring X system last year at the CES. But I guess, given COVID and everything else that was happening, probably went on a back burner. This is a dealer-installed system that they are kind of looking to roll out maybe potentially this year. How do you compete with a deep-pocketed player that is really looking long term and doesn't mind investing at all?

Yes. I mean, Amazon, obviously, is an incredibly formidable competitor. The -- and we get asked a lot about Amazon, but we have a lot of formidable competitors outside of Amazon as well. As you know, Kunal, this space is incredibly fragmented. There's lots of mom-and-pops out there. They have access to much of the same hardware, not always the same software, but much of the same hardware that others do and provide a great service. And so there's tough competitors all over, inclusive of Amazon. Most of the Amazon efforts to date, to your point, have been around the DIY space. As you know, it's our contention that the DIY customer and the do-it-for-me customer are largely discrete. When we lose a do-it-for-me customer to a competitor, it's not often where we are losing that competitor -- losing to a competitor who's a DIY competitor. But as Google, as Amazon continues to enter the space, we'll focus on our relationship with Google, continuing to work to differentiate our product and keep our eye on the north star of customer satisfaction and delivering value for our customers in ways that's better.

When you think of like -- you've been in business 150 years. And so a lot of people would think that the market should be mature maybe by now, at least for basic home security. When you go in and you add subscribers, new subscribers to ADT, what percentage of those subscribers are basically homes that have probably never had home security and are taking it for the first time versus homes where you're getting a subscriber that previously used maybe Brinks or somebody else or a third-party mom-and-pop system and are now switching over to ADT? How is that proportion?

Yes. I'm not sure -- and I don't know. Jeff, if you know, chime in. But I'm not sure what percent of our customers don't have a system in their home when we install when they become a customer. I would say, at this stage, it's the majority of the time, Kunal. And increasingly, it's not as much a security system. Security is an important feature in the system and a driving motivation, a very significant part of the time for the customer to acquire our services, but it's increasingly a smart home system. The number of devices that we install today in a home are 12, 13, 14 devices, and the device count per home continues to increase. And that smart home adoption, the interest in controlling a home, lights, locks, thermostat, garage door and security is increasingly the kind of system that we're installing in a home. And I think 80 -- I want to say 86% of our new customers are using that interactive system to control their smart home.

Yes. And it's been the case in the U.S. for many years as far back as I've looked that third-party researchers would say that approximately 20% of U.S. households have professionally monitored security, maybe it's 22% or 23% in a given study, but it's been stubbornly in that range. One of the things we're encouraged by, to build on Jim's point, is it if there's a certain cohort of consumers who are interested in security first with some of the smart home features being ancillary or secondary, what we're starting to see is more customers who are interested in the smart home, and they enjoy the security, but their reason for buying isn't security-centric, it's smart home-centric. So we're encouraged that there's growth opportunity just from getting to a larger percentage of U.S. households having a system. And whether we call it a security system or a smart home system ultimately it won't matter, but in partnership with Google and some of the things we're talking about here, where we think there's additional growth opportunity to expand the penetration across U.S. households that have a smart security system.

Great. There's one more point I want to touch on, but we'll come to that later. I want to talk about the guidance and talk about the free cash flow guidance for 2021, which is lower than what you delivered in 2020. I wanted to understand, get that you are investing more in subscriber acquisition costs, and some of that you've already done in the first quarter with the Ackerman acquisition. But can you help us understand the puts and takes in terms of the free cash flow guide for the year? What brought it up? What brought it down? And how should we kind of think about it on a year-over-year basis?

Yes, sure. So cash has been a central theme for us since our IPO in early 2018, and it remains an important focus area. The first thing I want to emphasize is that we're really excited that we're in a position where we're now able to make a choice to deploy more capital towards growth. So if I'm just pointing to one thing in our cash flow guidance, it's that. It's that decision to spend more on subscriber acquisition costs and then spend on some of the investment areas we briefly touched on earlier. So this is due to the backdrop of the macro dynamics that Jim described. It's our improved internal capabilities. It's our pricing model. It's the Defenders integration. It's the specific partnerships. And as we talked about at the beginning, those things have all come together in such a way that we have growth opportunities available to us. I'll also mention that we've meaningfully improved the characteristics of our business with attrition down about 300 basis points compared to legacy ADT attrition. Our revenue payback at 2.2. It was 2.7 or something like that 5 years ago. So certain opportunities, they're just more profitable than they would have been had we not made that progress. Just for illustrative purposes, we've shared that we expect to grow our recurring monthly revenue additions in the teens, for illustrative purposes, a 15% increase in subscriber acquisition spend year-on-year that would go with that would be about $200 million. We've shared that we expect to spend $150 million to $250 million more dollars on subscriber acquisition spend, so that's really why. Of course, we'll seek to deploy it even more efficiently and continue our progress. And then we've shared that we have $50 million we're planning to spend on the new comprehensive end-to-end platform that we talked about just briefly earlier. So those things really are the drivers. There's a whole lot of other puts and takes, as there always is in cash flow, especially '21 compared to '20 because of some of the dynamics in 2020. But if I were to exclude those things I just described, then our cash flow would be up in a meaningful way on a year-on-year basis. I'll also note that our full year cash guidance includes the February Ackerman account acquisitions that went with our -- with taking on Ackerman as a new dealer. Consequently, that's in the first quarter. Consequently, we'd expect to have minimal cash flow in the first quarter, especially combined with the timing of our interest expense. But our full year guide of $450 million to $550 million goes with the growth that we have mentioned at length. And that, for lack of a better term, we're really excited about. It's energizing to be in an organization that's now focused on growth.

Kunal, one thing to add very briefly is we -- we're excited about the growth opportunity. And as Jeff mentioned, we guided to growth in the teens, coming off of low single-digit growth years over the course of the last 4 or 5 years. But we're going to achieve that growth without swaying from our history, our recent history of disciplined growth. So we're not going to grow by lowering prices. We're not going to reduce credit scores. This growth will be good growth. And because of all the reasons that we've been discussing, we feel really bullish about it in '21 and beyond.

And one more point, too, I'd like to share is that in 2017 our adjusted free cash flow was just over $400 million, and we had about $48 million of RMR adds. Even in our 2021 guidance, which is down because of these investments relative to 2020, it's still above the 2017 level, and implicit in our guidance is RMR adds. That would be something like 25% or more higher than the RMR as we generated in 2017. So it's just another way of looking at it, but it's a testament to all the progress we made in the past few years, becoming more efficient with subscriber acquisition, more efficient with our core operations, having improved our capital structure. We've done a series of refinancing transactions that have collectively led to meaningfully lower interest expense. So in many ways, we've built ourselves the capability to grow more because of a lot of work over the past few years.

Actually, you raised a number of interesting points that I really want to go into. And one of them is discipline and, of course, investment. You spent over $100 million in dividends every year. Why don't you invest that in the business instead? I mean growth investors don't expect dividends. So why not use that subscriber acquisition cost for product development or anything else?

Yes. Kunal, I offer 2 things. The first is there are some of our investors that require a dividend in order to invest. And we have a small dividend. We want to attract those investors that are -- that have a screen, if you will, on dividend-paying companies. And so our decision was to have a small dividend to attract those investors. In terms of ability to pay, because of all the things that Jeff just talked about in terms of free cash flow expansion over the course of the last several years, we also feel good at this point in our ability to handle the dividend. We can address our growth needs and pay a dividend and, we believe, deleverage over time based on the cash flow that we have.

And one question that I think it would be wrong on my part if I did not raise that. But Apollo's decision to sell shares at $10 kind of sets, at least in investor perception, sets an artificial ceiling on valuation. How do you resolve the twin issues of like limited float on the one hand and the perception of a potential selling shareholder on the other?

Yes. So Apollo has to speak for Apollo versus me speaking for Apollo, but I'll share a couple of perspectives. The secondary offering was driven by -- motivated by the desire to increase the float. And we are trading today, our trading volume, give or take, is about double what it was prior to the secondary offering, so it was motivated to improve the float more than it was a belief, more than a contention that $10 was an ideal price is the first thing. The second thing, again, I can't speak for when Apollo intends to sell or how they're thinking about the exit, but they've been incredibly supportive of the strategy. I can tell you they're excited about our growth prospects. They, too, see the Google relationship as transformational for us. And I think the commitment is strong for the long term from Apollo.

Great. One on -- you probably have ADT security. So you switch it on at night, and you have a nice, good sleep. But if you were -- if there were something that would keep you awake at night, what would that be?

Oh, boy. I would say...

Security.

Say that again?

This is when you don't have ADT security, that's when you stay awake. So what would keep you awake?

Yes. Other than grandkids, let me think here. I think the -- I think there -- I think any CEO that isn't looking over their shoulder focus on the competition anxious about how we're competing, thinking through how to differentiate isn't doing their job. And when I think about the paranoia that I have, the incessant focus on competition and ensuring that we deliver value to our customers that's different and better than theirs, that would be the most nagging constant thing on my mind and potentially the thing that would take most share of mind at night.

That's great. Jeff, what about for you?

Yes. Well, I would -- I would tell you, since we released our guidance, the equity market reaction has caused me some 3 a.m. consternation more than one evening. And so one of our focus areas here is to have these kinds of conversations and make clear to investors that we are excited to be in a position -- the organization is energized to be in this position to be able to move from having grown our RMR adds for 1% or 2% for a number of years to be out here with guidance that's telling you we're planning to grow in the teens. So more than once I woke up in the middle of night, you're thinking about how do we make that clear and especially emphasize that this is a big positive for the company. And we're very pleased with the progress we've made over the past few years to put ourselves in a position to be able to change our trajectory in such a historic way.

Great. We have about maybe a minute left. In that minute, I want you to touch on something that you talked about, aging in place. And that is going to be a bigger and bigger topic as we -- as the U.S. population kind of ages, how are you thinking of like an aging-in-place solution? What do you need to have? What are the key elements that you need to have so that you can start offering this kind of a solution, maybe partnerships, maybe sensors, maybe whatever else? What do you need for aging in place?

We have a small business in the health space today that is focused on aging in place, Kunal. You're right, we see a massive opportunity, 76 million baby boomers born between '46 and 1964 who are aging. There's very likely an opportunity for us to include features in our offering that facilitate aging in place, and that generally is how we're thinking about participating in that space as a feature either via partnerships or via sensors in the home, part of the smart home ecosystem that allow us to address that market need.

Great. With that, we are on time. Jim, Jeff, thank you so much for doing this. And I look forward to potentially hosting this live in person in West Palm Beach, Florida and potentially following that with a trip down to your headquarters to actually meet you in person with a bunch of investors. That will get them really excited. So thank you so much. Have a fabulous day.

Thank you very much.

Thank you. Have a good day.

Thanks. You, too.