ADT - NYSE

Hello, and welcome to ADT First Quarter 2026 Earnings Conference Call. Please note that this call is being recorded. [Operator Instructions] I will now hand the call over to Elizabeth Landers, Vice President of Investor Relations. Please go ahead.

Good morning, and thank you for joining us today to discuss ADT's First Quarter 2026 results. Speaking on today's call are Jim DeVries, our Chairman, President and Chief Executive Officer; and Jeff Likosar, our Chief Financial Officer. Following their prepared remarks, we'll be joined by Omar Khan, our Chief Business Officer, and will open the call for analyst questions. Earlier today, we issued a press release and an earnings presentation summarizing our results. Both are available on the Investor Relations section of our website. During today's call, we'll reference certain non-GAAP financial measures. Reconciliation to the most comparable GAAP measures can be found in the earnings presentation. Unless otherwise noted, all financials and metrics discussed reflect continuing operations. Our remarks today also include forward-looking statements made under the safe harbor provisions of the Private Securities Litigation Reform Act. These statements are subject to risks and uncertainties that are described in the earnings presentation and in our SEC filings. Actual results may differ materially. Please refer to our SEC filings for more details. And with that, I'm happy to turn the call over to Jim.

Thank you, Elizabeth. Good morning, everyone, and thank you for joining us today. I'll focus my remarks this morning, mainly on the key highlights from our first quarter. I will also build on the strategic update and longer-range outlook we shared on our last call in March. Then I'll turn the call over to Jeff to walk through our financials and outlook. Let me start with a few key financial highlights. I'm pleased to report that ADT delivered a strong start to the year. Our results were consistent with our plans with particularly strong cash generation. Adjusted free cash flow, including swaps was at $414 million, and adjusted earnings per diluted share was $0.23, up 10% year-over-year. Our durable recurring monthly revenue was $359 million, flat versus prior year. Gross revenue attrition remained at 13.1% and our revenue payback period was 2.3 years. Cumulatively, these results reinforce the durability of our model and progress strengthening ADT's business, prioritizing high-quality ads and more efficient acquisition channels. Turning to our key initiatives. The strategic update we shared on our last call emphasized the consistency in our overall mission. We also outlined how we are reshaping and redefining the delivery of smart home security. Our mission remains clear: to protect and connect what matters most and to provide our customers with peace of mind. Our overall strategy remains anchored in 3 core differentiators: unrivaled safety, premium experience and innovative offerings. As we described, during 2026, we are accelerating progress with investments in 3 key areas: product technology, service excellence and customer acquisition. Together, these investments support our vision to deliver always-on security and convenience with split second and proactive response and solutions that evolve with our customers, whether they're at home or away. First, on product technology. Our proprietary ADT+ platform continues to gain traction. ADT+ brings together professional monitoring with leading smart home devices, including Google Nest and Yale products, enabling a more flexible and modern experience for customers. In the first quarter, approximately 30% of our new customer additions included ADT+. We expect to continue expanding penetration of our ADT+ ecosystem and app to more channels including, most importantly, our third-party network of dealers who will begin transitioning to ADT+ this summer. Dealers represented more than 1/3 of our total gross additions last year and as they adopt ADT+, we expect more than 2/3 of new subscribers will be on our proprietary platform. We also expanded ADT+ features in the first quarter with the launch of two new innovations that extend the platform's capabilities. Live Light as the industry's first illuminated wireless yard sign that directly connects to the ADT+ system and illuminates during an alarm event, giving first responders an immediate visual signal and letting potential recruiters know a home is actively protected. My Safety is a personal mobile safety service in the ADT+ app that provides customers with the same protection they know and trust from ADT at home, but while they are on the go, including seamless connection to ADT's nationwide monitoring network wherever they are. We already have 35,000 customer activations. With innovative features such as these, ADT is improving security and demonstrating our belief that safety is not just about intrusion detection, it's about awareness, visibility and response and most importantly, peace of mind. As discussed on our last call, we acquired Origin AI in February, which will add AI-driven ambient intelligence technology into the ADT+ platform, creating a new layer of home intelligence. This privacy first WiFi-based sensing technology allows customers to understand what's happening in their homes without cameras or wearables. Over time, this will become an integrated part of the ADTs experience enabling richer resolution and awareness while continuing to protect our customers' privacy. Concurrent with this acquisition, we also entered into a long-term technology licensing agreement with Verisure, reinforcing the global relevance and scalability of this platform and the practical use cases already deployed in Europe. Since closing the acquisition, we are rapidly progressing both technical development and commercialization plans. And during the first quarter, we completed the design of a smart plug that will enable integration into our core offerings. Key priorities over the next 2 quarters include initial manufacturing and pilots of these smart plugs and technical development for integration into our ADT+ platform for security and aging-in-place use cases and integration into a third-party router. As we deepen our plans to deploy this sensing technology and work with the team, I'm even more excited about the role these capabilities will play in our evolution to proactive peace of mind. Next, our second area of investment service excellence. ADT's best-in-class team of employees continue to deliver outstanding service and support for our customers. Alongside the AI-enabled features in our product offering, we are also increasingly using AI to deliver better service for our customers while delivering better economics for the business. We're deploying AI-powered virtual agents across both chat and voice interactions to improve responsiveness and consistency, enabling customers to get accurate answers faster while allowing our human teams to focus on the highest value customer interactions. As of the first quarter, all chat interactions and approximately half of our phone calls are initially routed through AI. Containment continues to improve, meaning more issues are resolved without any human intervention. These efforts are both improving the customer experience and beginning to structurally lower our cost base. Additionally, our unique combination of AI capabilities and human expertise have lifted our Net Promoter Score. We're also seeing record levels of customer self-service powered by an expansion of AI use cases, enabling deeper customer engagement and a significant reduction in high-cost field service appointments. Importantly, ADT employees continue to handle situations where human expertise matters most, such as during emergencies or when an on-site, highly trained service technician is the best way to resolve a customer issue. And finally, our investment in customer acquisition. While ADT already enjoys the benefits of a very strong and trusted brand in a variety of routes to market, I'm excited about several areas we will advance this year. One highlight is our expansion into e-commerce with the launch of ADT Blue, a new product line designed to appeal to more value-conscious and DIY-oriented customers. This launch includes lower-cost cameras, expanding our product portfolio and enabling lower price points to appeal to a different segment of customers. ADT Blue will debut on our own website in late May and then in additional e-tail channels, including Amazon over the summer. We're excited to unlock these new routes to market and to begin targeting this segment of customers, which we believe represents incremental TAM. We anticipate more volume from more price-conscious or DIY-oriented customers from this launch. And while some prospective customers may choose these lower-priced DIY solutions, we also envision converting a subset of them to our more traditional professionally installed solutions. Additionally, we are continuing to drive efficiency in our overall go-to-market approach, including rationalization of our marketing spend and our highest cost channels. So far, we've lowered third-party affiliate lead fees by $100 per installation, and we're working on efficiency changes to our dealer model. As I mentioned on our last call, these changes may temporarily impact subscriber additions, but they're designed to improve long-term efficiency. As we've shared previously, we will also continue to evaluate bulk account purchase options and potentially full acquisition opportunities in our industry at attractive economics. In closing, we remain focused on executing on these initiatives, which we have outlined and positioning ADT for long-term value creation. I am confident in ADT's outlook and our ability to deliver on our commitments for 2026 and beyond. I want to thank our employees, partners and customers for their dedication and trust in ADT. I'm proud of our team's performance and excited for the opportunities ahead. With that, I'll turn the call over to Jeff.

Thanks, Jim, and good morning, everyone. I will take the next few minutes to add some detail on our first quarter results and share an update on our outlook for the rest of the year and the second quarter. I'm very pleased with our start to 2026, which was consistent with our plans and the outlook we shared in March. As Jim mentioned, cash flow remains a significant highlight. And in the first quarter, we generated $414 million of adjusted free cash flow, including interest rate swaps, which was up $187 million or more than 80% versus last year. This result was driven primarily by lower cash interest, the timing of some payroll-related disbursements and other working capital items and our overall profitability. We continue to enjoy a very strong capital structure and liquidity position with our $800 million revolving credit facility and $119 million of cash available at the end of the quarter. Notably, this was after funding the Origin acquisition and returning $161 million to shareholders. Earlier this year, our Board authorized a $1.5 billion 3-year repurchase program and during the first quarter, we retired approximately 18 million shares for $116 million. We do not believe our current stock price reflects the intrinsic value of our business and have therefore deployed additional capital towards share repurchases in April. Our year-to-date repurchases total approximately 35 million shares for $230 million. Turning to earnings. Adjusted EBITDA for the quarter was $674 million, up 2% versus last year and adjusted earnings per share was $0.23, up 10%. This performance reflects the durability of our high-margin revenue and our overall efficiency across the business, allowing us to deliver solid results while also investing for the future. Our first quarter results also include a favorable legal settlement loss recovery, partially offset by an increase in our allowance for credit losses. In addition, earnings per share benefited from last year's share repurchases enabled by our cash generation and our efficient capital structure. On the top line, we delivered first quarter total revenue of $1.3 billion, up 1%. Monitoring and services revenue was relatively flat with an ending RMR balance of $359 million. I will note our prior year results include the multifamily business we divested last October, which represented approximately 200,000 subscribers and $2.6 million of RMR. On a year-over-year basis, higher average pricing across our subscriber base largely offset the absence of multifamily revenue. Installation revenue in the quarter was $198 million up 7%, reflecting a higher mix of outright equipment sales related to our transition to the ADT+ platform. We added 161,000 gross new subscribers with $10.1 million of RMR on lower cash stack. We remain focused on delivering strong subscriber economics and returns on the capital we deploy and have consequently continued to bounce SAC spending with other uses of cash. Our overall capital allocation priorities remain unchanged. We are investing in the business where returns are compelling, both organically and via periodic acquisitions, we are returning capital directly to shareholders and we are maintaining a healthy balance sheet with an objective of further reducing leverage. After several refinancing and repayment transactions last year, our weighted average maturity is approximately 5 years and our cost of debt is currently around 4.3%. We remain very comfortable with our current leverage at 2.7x adjusted EBITDA with net debt of $7.3 billion. Earlier this month, we repaid the remaining $75 million of our 2020 notes at maturity with our next maturity in August of next year. Before I conclude, I want to briefly reiterate the full year 2026 outlook we shared in March. We expect a very strong adjusted free cash flow growth of approximately 20% and revenue and adjusted EPS to be approximately flat to last year. This outlook reflects our ongoing prioritization of cash generation, disciplined subscriber acquisition spending and share repurchase plans. It also incorporates planned investments benefiting future periods, which Jim described earlier, along with expected tariffs. For the second quarter, we expect revenue and EPS to be slightly lower than the first quarter due primarily to higher advertising spending with the ADT Blue launch, along with other initiative investments. We also expect adjusted free cash flow to be $100 million to $150 million lower sequentially due to higher seasonal sack spending, the timing of working capital flows and tax payments. We're pleased with our strong start to the year and remain confident in our ability to deliver 2026 results while also investing in initiatives that generate growth in future years. Thank you again for joining our call today and for your continued support. Operator, please open the call to questions.

[Operator Instructions] Our first question comes from the line of Ashish Sabadra from RBC Capital Markets.

As you have improved the efficiency and the overall go-to-market approach, you talked about several things that you've worked on and also increased your upfront revenues that you're getting on these installations. How do we think about the customer acquisition cost trending over the next 3 to 5 years and the benefit to the free cash flow from that?

Yes. Thanks, Ashish. It's Jeff. We think there's meaningful opportunity. We, for some time, have been focused on reducing our cost of subscriber acquisition including especially for more installation revenue as customers buy more comprehensive systems, what we're focused on especially this year, is go-to-market efficiency. And there are several things we could highlight, but one I will highlight specifically is the transition as we launch our ADT Blue platform to e-tail type channels, which we believe will be more efficient methods of adding subscribers. And then the other that Jim alluded to in his prepared remarks, is transitioning away from some of our highest cost lead sources and higher-cost channels, and we think there's meaningful opportunity there over the coming years, which is reflected in the long-range guidance we put out where we said we were targeting getting to revenue payback more like 2x or lower.

That's very helpful color. And maybe just on the bulk account purchases as well as potential full acquisition opportunities. Can you talk about the pipeline there?

Thanks, Ashish. It's Jim. I'll share some perspective on the bulk front. As you know, we think about bulk acquisition and tuck-in M&A as an effective lever for growth in our business. We've executed bulks in the last 6 years. We did not do a bulk in Q1. We were unable to reach terms. We're looking for returns in bulk, which are generally consistent with our dealer business. And if we can't get those returns, we won't pursue the deal. We're almost always engaged with sellers. I expect that will continue. But for Q1, none of the opportunities we considered quite met our standards. But we're pretty consistently engaged. We're engaged now and it will continue to be an option for us as they lever for subscriber adds.

Our next question comes from the line of George Tong from Goldman Sachs.

You shared some color just now on your bulk account purchase strategy. If you look at your organic strategy for driving RMR additions, what are some of your top initiatives to fuel a return to stronger gross RMR additions growth?

Yes. So I'll comment -- I'll give you some color more broadly, George, and then zero in on your question, but some context. Candidly, I would have liked to have seen stronger adds for the quarter. Dealer was a little soft relative to last year. Our multifamily business, as you know, was sold last year, State Farm adds aren't coming in. We actually tightened our credit standards a bit. And as Jeff and I have been talking about, we have continued to reduce our reliance on high-cost channels. But we're making some investments that we don't think will yield immediate results, but they're good for the long-term health of the business. I'll mention 3 of them. The first is around product technology. We're excited in particular about Origin and ambient sensing and integrating that into ADT+ and then the subsequent commercialization of the product features associated with it. Second area is around AI investments. We're not just going to leverage AI in customer service but begin to leverage AI and marketing and sales. And then Jeff just mentioned something that we're really excited about around new routes to market, e-tail, retail, new offerings targeted to the DIY-oriented customer. We are just in the second quarter getting started, and I think this will be an attractive opportunity for us to add subscribers.

Very helpful. And then turning to free cash flow, you're guiding to 20% plus growth this year. Your multiyear framework calls for 10% plus growth. Can you elaborate a bit on what's driving the outsized growth this year? And how long free cash flow growth can stay above 10%?

Yes. So maybe I'll remind a bit about our approach to the overall year, which is focused, especially on really strong cash generation as we work through the deployment of all of the initiatives that we have described and that goes with in our overall guidance for the year, flattish revenue and EPS growth, and our guidance reflects meaningful investments in the initiatives that we expect to drive those longer-range outcomes. As a result, we're not spending as much SAC this year as we otherwise might. We also, as we get into subsequent years, we'll have likely a bit more tax expense. So that -- those are among the reasons why this year is stronger than what we have in our longer-range framework. And I also mentioned, even though you didn't ask specifically, the first quarter was exceptionally strong. it was largely consistent with our expectations, and that was to do with the timing of interest payments, the timing of some other working capital payments. So we feel really good about our start to the year on cash flow, especially and are well positioned to deliver what we suggested on a full year basis.

Our next question comes from the line of Pete Christiansen from Citi Group.

Jim, I want to dig back into the question on more organic RMR growth initiatives. I'd imagine, particularly in this next-gen iteration of your dealer strategy that potentially give some avenues at least regionally. If we take in a regional scope, are there areas where ADT from this organic less dealer reliant avenue can lean into certain regions to help improve share and gain RMR additions? Is there an opportunity there that could help accelerate overall RMR additions?

I think so, Pete. And thanks for the question. The -- I don't know that I would categorize any given region is particularly more attractive than others. But I would say that the opportunity for tuck-in M&A with large regional players and local players. As I was mentioning on an earlier question, is a real opportunity for us in terms of adding gross subscribers, a roll-up strategy of sorts, I think, is something that's available. As you know, we've stuck with bulks and not buying complete companies but I think the pipeline for both bulk and for M&A is an option for us, and it's available in just about every part of the country.

That's encouraging to hear. And then on the attrition incremental nonpays here, it's interesting consumer credit has gone through a bunch of changes right now. Curious if you could just -- we can get to that next level. See if there's any discernible trends that you're seeing in non-pay activity we've seen, obviously, K-shaped economy, higher fuel costs, those sorts of things are now in the play when people think about consumer credit going forward. Just if you could dig into a next level there. And I know you mentioned that you're lifting your FICO threshold, which is a smart idea. But is there anything else that you can do to navigate some of the changes that you're seeing more broadly into super credit?

Great question, Pete. I'll share some context around your question related to attrition, and then Jeff will address the nonpay more directly. As you know, attrition was flat for us at 13.1%. We had modest pressure from nonpay cancellations. They were just a touch higher than last year. Relocation cancels were flat and voluntary cancels were meaningfully better than last year. I should mention small business, which we're keeping an eye on, was also flat to last year and the sale of multifamily was actually a modest tailwind for us. A couple of things that are going well in the short term, and then I'll mention a couple of things that are a little longer term that are reasons for optimism. Short-term NPS for us is coming in really about as high as it has been over my 10 years here. All of the operating metrics, first call it resolution, agent satisfaction, digital self-service, all of that's going up and to the right. And so short term, I feel really good about our operations and our ability to retain customers. A couple of things longer term that are worth mentioning. You referenced the tightening of credit standards that's in place and will bode well for us. A little bit of pressure on gross adds, but it will bode well from a retention perspective. Longer term, better product experience, deeper, more frequent customer engagement is something that Omar and the product team are working on. We're excited about leveraging AI. In a couple of weeks here, we're going to implement AI-driven call routing and begin to implement AI for churn propensity modeling. So I think all of those will be positive for us. It's not going to be next quarter. but it will bode well for us in the longer term. In terms of nonpay specifically, Jeff, do you want to share some perspective?

Sure. It's a topic, of course, we monitor very closely. We consider it very carefully. Fundamentally, it is part of our overall subscriber economic model. We recognize that we will suffer some nonpayment as part of that and are always looking at the right trade-off between our credit policy and the effect it might have on either, a, ads or importantly, b, installation revenue. So as we make refinements, the refinements we're making are both to whom we offer credit, how much credit we offer. And if we offer less, we likely or in many cases, would still get the subscriber just potentially with less installation revenue, which has a margin that goes with it. So we assess that against what we think might be the credit losses and while we are not perfect at predicting them, we have gotten pretty good and a lot better at predicting them. And as we continue to make those refinements, it's with the lens towards optimizing overall subscriber economics overall return on invested capital. And then I'll mention just because I mentioned in my prepared remarks that we did record some higher allowance for credit losses. Part of the reason for that is as we transition to more of our transactions being outright sales to customers, it means we're recording the revenue earlier. And if we record the revenue earlier under the accounting rules, we have to record an appropriate bad debt provision. So while we've seen some slightly negative trends, we think we have our arms around it, and we'll continue to adjust to optimize both the short-term and long-term economics.

That's helpful. I didn't realize the cost method accounting there, but Jeff, thank you for that clarification.

Our next question comes from the line of Manav Patnaik from Barclays from Barclays.

This is Ronan Kennedy on for Manav. If I may, please, a multiprioritization of the high-quality ads and more efficient channels gross adds still decline. How much of that volume decline is intentional versus underlying demand dynamics? And how are you quantitatively defining that high-quality adds? Is it the payback, the IRR, expected lifetime value or just discuss the credit? And how have those thresholds changed?

Two -- we've got tag-team this for you, Ronan. It's Jim. I'll start, maybe reiterating just a bit on what I mentioned earlier for gross adds. I would have liked to have seen more adds in the quarter. So not all of it was intentional. Much of it was. We're about flat in direct installations. The reason why we're down tends to be mostly from dealer and in fact, one dealer in particular. We have a little bit of tailwind on the multifamily sale. But some of the changes that we made, the tightening of credit standards and dialing down the reliance that we have on some of our higher-cost affiliates, all of that is intentional. It's hard to give you a percent on how much was intentional and how much was not. I would say something more than half of our miss was versus last year was intentional. But I feel good about those changes even in this year and getting on track with our direct ads. Jeff, did you have more?

Yes. I would emphasize, we get the question also on attrition of parsing the individual components. It's difficult. We think of it as an overall ecosystem. And the main thing I would add or reiterate is that our first quarter was largely consistent with our plans. Our full year revenue guidance was to be approximately flat. We were slightly better than that in the first quarter. The key driver of our revenue is monitoring and services revenue. The key driver of that is our overall RMR balance. So you could deduce even though we don't specifically guide to RMR that it was pretty consistent outcome in aggregate and overall in consideration of all things, including the ads, including the attrition, including price escalations. So we feel really good about our start to the year. And even though, as Jim mentioned, we always want to have more ads, but we were out of the gate very similar to the way we expected to be out of the gate through the first 3 months.

Got it. That's helpful. And on the AI routing, I think roughly half calls 100% at chats. Are you quantifying realized cost savings to date and how much incremental margin opportunity remains there?

I'll give some context on AI, Ronan, and ask Jeff or Omar to jump in if they have more to add. There's 3 or 4 areas that we're focused on within AI right now. On the top of the list is containment and advancing our containment. Most all of the calls, the calls in the call center will be handled through AI this year. But a couple of stats for you to demonstrate how quickly this is accelerating for us. Our chat containment in Q1 was 45%. And at the end of April, it's 60%. Call containment was 16% for the first quarter. By the end of April, it was 25%. And I'm not sure that it will continue to be linear like that, but we have a fantastic internal leadership team, great partners in Sierra, the Google team and expect to continue to make real significant advances in -- on the call center side of our business. Next up for us is transcription, analysis of calls, as you know, from an earlier answer, we've got churn propensity modeling on the docket. And then lastly, we're not just using AI for cost reduction, we're also implementing AI into our marketing and sales motion. Outbound calls, for example, for low converting leads will now be done principally by AI. AI is involved in the prequalification process, just helping us to be much more efficient from a go-to-market standpoint.

Yes. And to your question about quantification, while we haven't specifically shared a quantitative target, I would tell you it's in the millions, many millions, even tens of millions if I count the benefit of reducing the quantity of truck rolls. We think it's more over time. And it's among the reasons in our full year guidance, we're able to overcome the headwinds from investments and from tariffs and with flattish revenue still have a profitability or EPS in the flattish range. So a very meaningful contributor, AI and cost discipline and cost management more generally across the business, and our teams are doing a great job executing both AI and costs more broadly.

And I'll add in. This is Omar. Just a couple of examples. As an example, our product engineering group that has led the adoption of cursor AI tools in our workflow. We've been extremely successful. As of last month, over half of our committed software code is being written by AI. So not only has that increased our velocity, but it's also increased our capacity while holding our engineering head count flat. And we anticipate that to continue as we adopt across the organization from an efficiency perspective. In addition to all the efficiency metrics that Jim, Jeff and I are talking about, we're also using AI to engage our customers within ADT+. So we're going to be rolling out Gemini AI features. And as you know, Origin's AI features will start to roll out within ADT+ as well as other stand-alone solutions in the next year or so.

Our last question comes from the line of Greg Parrish from Morgan Stanley.

Congrats on the strong results. Just trying to talk about DIY and ADT Blue rolling out here. This is a channel you've been overly assertive in historically, right, economics are quite as good. And maybe just help frame for investors why now? Is it DIY profitable now? Do you have more avenues to convert them to do it for me? Just maybe from a strategic perspective, why the change in approach to DIY now?

Omar, do you want to?

Yes. So I think for the first time, we as ADT have developed a hardware and software customer experience that's purpose-built from the ground up for DIY customers in terms of both how they buy, how they activate and how they interact with the technology. We are taking this market opportunity seriously as a significant TAM opportunity, as has been demonstrated in the market already by other DIY camera-only and security providers that are having success in that market. I think for too long, we, as ADT have seeded this market where we both have -- where we feel like we have a strong right to play and to win and we're committed to a long-term roadmap of enhancements to our offering. We're going to be bringing out additional products from a hardware feature perspective as well as new AI features. And I think even more importantly, it's going to be one of the areas where we begin to integrate Origin AI sensing technology into the DIY offering to differentiate ourselves in the market and capture our fair share of the DIY market from a TAM perspective.

Yes. A couple of things I'd mention, Greg. The first is, historically, because of some contractual obligations that we had with some of our suppliers we were limited in how assertive we could be in this market. And now that the economics -- those contracts have been renegotiated, the economics are different for us today and give us a little more elbow room in competing in this marketplace. And as Omar just mentioned, he and his team have built from the ground up hardware and software set ready made to compete economically in DIY. And you're right about profitability in DIY versus DIFM but we think we can get a good return. All of the -- most all of the DIY subs will be incremental for us and then not unimportantly, part of our playbook will be to treat those DIY customers from a lifetime perspective and convert them as their needs change or their interest change to DIFM to pro-install customers where the profitability is much higher.

Yes. Okay. Great. That's really helpful color. Appreciate that. Maybe just lastly, I just wanted to circle back. You made some comments on second quarter. If I heard correctly, Jeff, I think you said revenue and EPS down sequentially in the second quarter. Call that higher ad spending, which explains the EPS part. So I just want to double click on the revenue part. Is there anything specific driving that? I mean, typically, second quarter is higher sequentially. So maybe there's some accounting nuance like install, recognition or something. But maybe just help us understand the revenue step down sequentially.

We don't expect revenue down sequentially. We expect our cash flow down sequentially is the most significant item I would highlight, and that's because of a combination of seasonal SAC spending and the normal course flows of working capital being less beneficial in the second quarter than in the first quarter, the timing of tax payments as an example. And then we are accelerating most of our investments, we have Origin, for example, for the full quarter, which we didn't have for the full quarter ADT Blue advertising rollout or some other engineering work across the business. So that's among the reasons that our EPS, along with the share count dynamics, but part of the reason our EPS in the first quarter on a year-over-year basis was higher than what we have said for our full year outlook, but we don't expect revenue down quarter-over-quarter.

Okay. Okay. Good. Yes, maybe I misheard and the transcript caught it wrong. So I'm glad I clarified that.

Thank you. I will now turn the call over to Jim DeVries for closing remarks.

Thank you, Jeannine, and thanks, everyone, for taking time to join us today. ADT delivered a solid quarter. We continue to feel good about the direction of the business. We're confident in our 2026 plans, both operational and the investments that we've been discussing and the impact that they'll have for a stronger future. One last time, I'd like to extend my appreciation to ADT employees and our dealer partners. Congrats on a very good start to the year. And thanks again, everyone, and have a great day.